Local gas utilities getting very high rate of return

Islamabad – The 17 percent return to the gas utility companies in Pakistan is more than double the rate of return enjoyed by the gas companies in America.

This was stated by Energy Regulatory Partnership-Pakistan USAID, chief of party J. Michael Biddison, recommending the return rate should be based on efficiency and performance.

“Fix return of 17 percent, on assets of the gas utilities companies, is too high as the companies in the US are getting less than half of this returns,” said Mr. Biddison in a presentation to the Consultative Sessions on Gas sector Reforms.

Oil and Gas Regulatory Authority, in collaboration with the World Bank and Ministry of Energy, has concluded the consultative sessions on Gas Sector Reforms with reference to Third Party Access Rules, Network Code and Tariff regime.

The session was chaired by Chairperson OGRA, accompanied by Member Finance, Member Oil and senior management of the Authority. It is pertinent to mention here that as part of the Gas sector reforms, Ogra proposed a new formula, featuring a varying rate of return for the public gas utilities of SNGPL and SSGC instead of the current fixed return.

How a state owned company can get such a big return from its consumers, Chief Party USAID said and recommended to use a separate path and utilize this return for investment. He further recommended OGRA that instead of bringing broader gas sector reforms first run a pilot project.  “Conduct gas market localized pilot projects that can demonstrate cost/benefits and can be replicated at the larger scale,” he added.

J. Michael Biddison was also critical of Unaccounted-for-Gas (UFG) enjoyed by SNGPL and SSGC, saying that 5 percent of non technical losses are too high, even on the technical side, which should be less than 5 percent. He further said that Identify and asses strengths, weaknesses, artificial barriers, gaps and holes that may support or hinder next step progress in gas market. He also recommended to develop gas storage in the country as Pakistan don’t have any gas storage.

A large number of stakeholders attended the session which include Sui Northern Gas Pipelines Limited, Sui Sothern Gas Company Limited, Federation of Chamber of Commerce and Industry, APTMA, representative of Federal Government, Media Personnel, general consumers/public and representative of the CNG Sector. The World Bank consultant gave a detailed presentation on the TPA Rules and Network Code whereas,

Executive Director (Finance), OGRA, Misbah Yaqub in her presentation on proposed Tariff Regime said that the theme of the tariff proposal is to strike a balance between the financial sustainability of licensees and impact on the consumer prices. The theme of tariff is to develop an open and competitive market, effective capacity utilization and efficiency in the economic resources. She claimed that the step will encourage private ownership and investment in the gas sector.

That Market based rate of return on Wighted Average Cost of Capital (WACC) on the value of net fixed assets is proposed. According the OGRA’s proposal the rate of return on Transmission is 10.76 percent while the distribution is 11.31 percent.

Meanwhile briefing media about the gas tariff initiative, Chairperson OGRA Ms Uzma Adil Khan said that “The Consultative sessions were conducted in all provincial Capitals and Feedback received during these sessions from all stakeholders will be genuinely given due consideration and valid arguments will be incorporated in the final report which shall be issued with the consultation of the Federal government.

The purpose of conducting these sessions was to obtain the views on the proposed TPA rules, Network Code and Tariff Regime from various stakeholders.

She said that instead of fix return they are introducing efficiency as benchmark. She said that some circles are circulated the rumors that it will reduce the profit of the gas utilities companies or the share of the SNGPL or SSGC will depreciate in the stock market but there is no reality in it. She said that it will help the consumers to get good services. She said that now the consultation has been completed and they will submit their final proposal to the Federal government.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More