Islamabad, June 3, 2023: The Oil and Gas Regulatory Authority (Ogra) has concluded its determinations for two struggling state-run gas utilities in Pakistan, paving the way for a potential 50% increase in natural gas prices starting from July when the new fiscal year begins. The determinations were submitted to the government for issuance of notification, as reported by The News.
Estimated Revenue Requirement and Collection Breakdown:
For the fiscal year 2023-24, Ogra has calculated an estimated revenue requirement (ERR) of Rs697.4 billion to be collected from gas consumers. The Sui Northern Gas Pipeline Limited (SNGPL), responsible for gas supply to consumers in Punjab and Khyber-Pakhtunkhwa (KP), is expected to collect Rs358.4 billion. On the other hand, the Sui Southern Gas Company (SSGC), which supplies gas to consumers in Sindh and Balochistan, will collect Rs339 billion.
Average Prescribed Price Determined by Ogra:
Ogra has determined the average prescribed prices for SNGPL and SSGC. The average prescribed price for SNGPL stands at Rs1,238.68/mmBtu, reflecting a 50% increase or Rs415.11 compared to the existing price. Similarly, the average prescribed price for SSGC is set at Rs1,350.68/mmBtu, representing a Rs417.23 increase or 45%.
Composition of Prescribed Prices:
Ogra clarified that the average prescribed price mainly consists of the cost of gas, accounting for over 85% of the determined price. This cost is a pass-through item and is calculated based on the agreement between the Government of Pakistan and gas producer companies.
Implementation and Collection of Revenue:
The decision made by Ogra has been forwarded to the government for notification, which is expected to occur within 40 days. Once implemented, the SNGPL and the SSGC will be authorized to collect hundreds of billions of rupees from consumers.
Requested Revenue Requirements and Prescribed Prices by Gas Utilities:
Initially, the SNGPL requested revenue requirements of Rs1,044.12 billion, including a revenue shortfall from the previous year of Rs560.38 billion. The SNGPL sought a 286% increase to set prescribed prices at Rs2,977.5/mmBtu. The SSGC requested an increase of 42%, seeking Rs388.01/mmBtu to recover Rs331.68 billion, resulting in a proposed prescribed price of Rs1,321.47/mmBtu.
Impact on Different Consumer Categories:
Ogra has proposed eliminating the distinction between protected and unprotected slabs for gas consumers and setting the price at Rs1,238.68/mmBtu for all categories. This change will result in a significant increase in gas prices, up to 923%, for protected low-slab consumers. However, two highly gas-consuming slabs will benefit from the new pricing as they were previously paying up to Rs3,100/mmBtu.
Changes in Gas Prices for Various Sectors:
While gas prices will become more expensive for zero-rated consumers, including CNG stations, cement, fertilizer, power stations, and independent power producers (IPPs), these sectors will experience a reduction in gas prices. However, the feedstock gas prices for the fertilizer sector will more than double.
Tariff Adjustments for SSGC Clients:
For the SSGC clients, the regulator has proposed eliminating the distinction between protected and non-protected slabs and setting the prescribed prices at Rs1,350.68/mmBtu. This indicates a significant increase in gas tariff for lower slabs, while higher slabs will experience a substantial reduction. Over 80% of gas consumers fall within the lowest three to four slabs.
Impact on Specific Consumer Categories:
The tariff for the roti tandoor category of gas consumers has been proposed at Rs1,350.68/mmBtu for all five slabs. The gas tariff for commercial gas consumers, including ice factories, has been reduced from Rs1,650/mmBtu to Rs1,350.68/mmBtu. The tariff for the general industry has been increased from Rs1,200 to Rs1,350.68/mmBtu, while for export-oriented general industry, the tariff has been increased from Rs1,100 to Rs1,350.68/mmBtu.
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Uniform Prescribed Price for Various Sectors:
The regulator has recommended a uniform prescribed price of Rs1,238.68/mmBtu for several sectors, including cement, CNG, fertilizer feedstock gas, power generation, Pakistan Steel, and IPPs. This is a significant change from the existing prescribed prices for these categories.
As the government processes the notification for the new gas prices, consumers in Pakistan brace themselves for the anticipated increase in natural gas prices starting from July. The impact will vary across different consumer categories, with protected low-slab consumers facing a substantial price hike while highly gas-consuming slabs and certain sectors benefiting from reduced prices.
