The government has constituted a committee to address Sui Southern Gas Company’s (SSGC) repeated claim of recovering RLNG losses worth Rs7.7 billion from consumers of imported gas after the Oil and Gas Regulatory Authority (Ogra) rejected the claim.
“As per directives of the adviser on finance and revenue, a two-member committee comprising Ministry of Finance secretary and Ministry of Energy (Petroleum Division) secretary has been mandated to resolve the issue in consultation with the stakeholders,” SSGC stated in a detailed report sent to the Pakistan Stock Exchange (PSX) on Tuesday.
The extremely high unaccounted-for-gas (UFG) disallowance is due to the fact that Ogra is not accepting the RLNG volume handling benefit allowed to SSGC vide a summary approved by the Economic Coordination Committee (ECC) dated May 11, 2018, duly endorsed by the cabinet.
“Had this benefit been allowed to SSGC, the net UFG disallowance would have been reduced by Rs7.7 billion,” the utility said in its interim financial information for nine months ended March 31, 2019.
In line with Ogra’s determination for the final revenue requirement (DFRR) for fiscal year 2017-18 issued on April 23, 2020, the total disallowance absorbed in these nine months amounted to Rs17 billion against Rs11.5 billion return on assets.
“However, in these unconsolidated financial statements, exceptional UFG disallowances made in DFRR for FY18 have not been followed which have been re-claimed in the motion for review (MFR) petition already filed with Ogra.”
It is pertinent to mention that all the stakeholders in the regasified liquefied natural gas (RLNG) supply chain are receiving compensation for the incidental cost/ loss on actual basis in the process of RLNG supply based on ECC’s guidelines issued for the RLNG price mechanism.
A similar benefit was allowed to SSGC through the above referred ECC summary in the form of volume handling benefit in the UFG benchmark determination. However, the regulator has refused to implement it.
In order to control the situation which SSGC is facing and to address Ogra’s concerns, the Ministry of Energy (Petroleum Division) decided to pursue the matter afresh after consulting all the stakeholders.
The ministry moved another summary to the ECC to enforce the decision made earlier by the committee.
“The latest update on the matter is that the ECC considered the summary in its three meetings but no decision could be taken,” SSGC said. Later, a committee was formed to resolve the pending issue.
“Consultation/ meetings of the committee were held and attended by the Ministry of Energy/ Ogra officials, SSGC and Sui Northern Gas Pipelines Limited (SNGPL) teams, chairpersons of both the utilities and various directors.”
Moving forward, the reduction in UFG is the key to keeping the company operationally and financially viable. Furthermore, it is critical that the company be allowed to calculate the UFG allowance based on RLNG handling on volumetric basis as stated in the decision of ECC of the cabinet, the Karachi-based utility firm said.
As per the current tariff regime, SSGC’s profitability is derived from the guaranteed return formula prescribed by Ogra. Under this formula, SSGC is allowed 17.43% return on its average net operating fixed assets before financial charges and taxes.
