The federal cabinet has given free hand to SNGPL and SSGCL to improve their return on assets which have dropped from 17.5 per cent to below 3 per cent due to strict benchmark of losses by Oil and Gas Regulatory Authority (Ogra). Both SNGPL and SSGCL are purchasing gas from Exploration & Production (E & P) companies and selling to various categories of consumers.
The companies are operating on cost plus return on assets formulae under licence from Ogra which is empowered to determine the revenue requirements of the companies under Ogra Ordinance, 2002. This includes wellhead gas price (cost of gas paid to gas producers/suppliers), transmission & distribution cost (operating expenses), and profit margin (presently 17-17 1/2 % return on assets before financial charges and taxes).
Official documents reveal that out of total production of 4,000 mmcfd, the companies are supplying about 2,900 mmcfd through their extensive transmission and distribution network of some 140,000 kilometers and serving 6.3 million consumers in their respective franchise areas.
Petroleum Ministry, in its summary to the Federal Cabinet, argued that due to its nature, a certain percentage of gas was bound to be lost during the operations referred to as Unaccounted For Gas (UFG). This is because of several factors, some of which are beyond the control of gas companies. Ogra has fixed a benchmark for the companies according to which cost of UFG beyond a fixed percentage is borne by the companies, adversely affecting their profitability. The erosion of this profit is so high that since the introduction of benchmark by Ogra the 17-171/2 % return on assets allowed to these companies has dropped to less than 3%.
Documents further showed that the companies are making all out efforts for UFG reduction, but their efforts towards (i) detection of pilferage from non-consumers, (ii) gas pilferage in law and order affected areas and (iii) limitation of inherent issues in domestic gas meters have not been recognised with the result that the companies may not be able to carry out major future developments or effectively maintain present system.
Keeping in view financial conditions of both gas companies, Petroleum Ministry recommended to the Federal Cabinet to issue a directive to Ogra under Section-21 of the Ogra Ordinance to enable them to allow following items as deemed gas sale volume for the purpose of UFG calculations: (i) volume pilfered by non consumers but detected and determined by the companies in accordance with Ogra procedure; (ii) volume against minimum billing amount charged to domestic consumers; and (iii) volume consumed in law and order affected areas.
Estimated financial impact of this proposal for FY 2011-12 would be as follows: (i) volume of gas pilferage detected for non consumers for SNGPL will be 11172 MMCF and SSGCL 2.059 MMCF; (ii) volume against minimum billing SNGPL- 7,541 MMCF , SSGCL- 3,987 MMCF; (iii) volume consumed in law and order areas, SNGPL- 3,377 MMCF - SSGCL 1,286 MMCF. Total volume for SNGPL will be 22,090 MMCF and SSGCL- 7,332 MMCF. Average cost of purchase rupees per million cubic feet will be Rs 288.19 for SNGPL and Rs 289.87 for SSGCL. Value of above gas volume will be Rs 6.366 billion for SNGPL and Rs 2.215 billion for SSGCL.
Officials said that since both the companies were publicly listed, they were time barred for the announcement of their results and accordingly Ogra has to give its determination of revenue requirements so that these financial results can be finalised. This deadline at best was October 13, 2012.
The sources said the trend of the gas pilferage by non-consumers was increasing with every passing day because of the restrictions on new gas connections, rapidly growing distribution network due to GoP''s socio political agenda and existing gap between demand and supply. Companies are making substantial efforts to control the menace which is reflected through their surveillance, detection and disconnection efforts. So far the companies have identified and disconnected hundreds of illegal networks supplying gas to thousands of non consumers through direct tapping of mainlines, extension through rubber pipes and other non conventional methods.
There are a number of obstacles in the legal process before recovery can be ensured from the gas pilferers. Until recently, FIRsregistered by the companies against individuals involved in gas pilferage have been quashed on the ground that no action can be taken against any person just on the complaint of the companies. However, with the recent changes in Pakistan Penal code, the companies expect some relief through creation of deterrence but the legislation allows initiation of criminal proceedings only and the recovery against gas stolen remains a major challenge.
As far as criminal proceedings are concerned, the companies have so far lodged 395 FIRs/applications across their franchise areas on account of gas pilferage, since the promulgation of amendments in PPC in December 2011. The volumetric impact of these non-consumer cases during fiscal year 2011-12 is 11,172 MMCF and 2,059 MMCF for SNGPL and SSGC respectively.
Ogra Ordinance makes it obligatory for Ogra to recover the value of pilfered gas from the culprits; however, it has not happened so far. Both companies have categorically stated that the above mentioned volumes have been determined strictly as per Ogra''s relevant procedures. Besides, the sale price of each category of retail consumers, Ogra also notifies minimum billing charges in consumer price notifications. These minimum charges are calculated on the basis of presumed consumption of 40 cubic metres per month and this practice was in vogue even before Ogra was established.
Historically, studies were conducted with reference to minimum consumption which a domestic consumer would require for its cooking requirement. The studies revealed that a single burner with the consumption rate of 12cft per hour if used for four hours a day would require 40 cubic metres a month. That is why concerned authorities have been notifying minimum charges equivalent to 40 cubic metres consumption per month in case of domestic consumers.
The companies are supplying gas to more than 6.3 million consumers. Detailed analysis show that in case of SNGPL around 35-40% consumers are billed on minimum basis in summer and around 25-30% in winter months. In case of SSGC around 31% consumers are billed in summer on minimum basis and around 21% in winter months. Unprecedented load management in recent years has taken its toll on the measurement capabilities of gas meters.
Recent independent study conducted by University of Engineering and Technology Lahore has corroborated the historical presumption with reference to minimum consumption. It can safely be concluded that any volume over and above the actual metered volume up to 40 cubic metres per month for which the consumer is bound to pay is a ''deemed sale volume''.
The government has directed Ogra to allow that volume of minimum consumption upto 40 cubic metres per month for domestic consumers as an adjustment in sales volumes. This would not have any bearing on the consumers'' monthly gas bills as they are already paying for the minimum consumption volume of 40 cubic metres per month.
The companies are also confronted with certain areas where law and order situation is such that it is practically impossible to carry out their normal operations yet have to continue gas supply to those areas in view of socio-political considerations. The meter reading in such areas is not possible rather in most of the cases the consumers have removed their meters. The companies have requested to allow gas volume consumed in such areas for the purpose of UFG calculations.
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