OGRA recommends increase in gas prices for SNGP and SSGC

The Oil and Gas Regulatory Authority (OGRA) has announced its decision regarding the review petition filed by Sui Northern Gas Pipelines Limited (SNGP) concerning the revenue requirement for the fiscal year 2025. As part of compliance with the International Monetary Fund (IMF) programme, OGRA has recommended an increase in gas prices of 8.8% for SNGP and a significant 26% for Sui Southern Gas Company (SSGC). These revised tariffs are expected to be finalized before February 15, 2025.

The profitability of the Sui companies hinges largely on the return on average operating assets (AOA). In its petition dated October 28, 2024, SNGP requested an AOA of Rs147 billion, up from the previously approved Rs108.2 billion. However, OGRA has maintained the AOA at Rs108.57 billion, closely aligning with the earlier approved figure. The required return on these assets has been set at 25.92%, translating to a return of approximately Rs37.8 billion, which includes Rs9.7 billion from RLNG assets.

Notably, OGRA has increased the allowed finance cost on running finance to 50%, up from 25% previously approved. However, the SNGP will still need to provide an independent auditor’s certificate to confirm that funds from the running finance facility are being utilized solely for payments to Pakistan State Oil (PSO) and Pakistan LNG Limited (PLL) to ensure uninterrupted operations within the RLNG supply chain.

For SNGP, the unaccounted-for gas (UFG) loss is estimated at 7.37% across the distribution and transmission networks. However, the allowed UFG for FY25 has been set at 6.3%, leading to a disallowance of 4,410 MMCF, translating into a financial loss of approximately Rs6 billion.

If the SNGP is allowed the full pass-through of finance costs, their projected earnings could reach Rs28.2 per share, compared to Rs17.3 per share with the current parameters. The average price per mmbtu is recommended to increase from Rs1,635.9 to Rs1,778.35, partly to cover a significant Rs55 billion addition to the revenue requirement that addresses a historical shortfall of Rs610 billion.

SSGC is similarly affected, with OGRA incorporating Rs83 billion from a total shortfall of Rs642 billion in its revenue calculations, leading to a proposed price increase of 26% to Rs1,762.51 per mmbtu.

Currently, the gas tariffs are covering approximately 100% of the operational costs, positively impacting the cash flows for exploration and production companies, including PSO. Stakeholders remain optimistic that either maintaining the current prices or increasing them would enhance cash flow recovery and help address outstanding financial backlogs.

The government is expected to respond with a final decision within 40 days following OGRA’s determination.