One wonders how the equity analysts at brokerages value the gas distribution companies. It has been a year and counting, since an annual report was last seen by either of SSGC or SNGPL. In whatever quarterly reports that were made public, the companies claim to have registered profits. This could well turn into massive losses if the Ogra decides against the companies revenue requirement petition, for which they currently have a stay.
Unaccounted-for-gas (UFG) losses have long been a bone of contention between gas discos and Ogra for various reasons. But, the bitter reality today is that Pakistans gas distribution companies are amongst the most inefficient in the region, with an unbelievably high UFG loss rate of over 11 percent. What is worse is that it has only been deteriorated with time, despite repeated claims of 'things will soon be on track'.
The financials of SSGC and SNGPL have been computed on the base of 7 percent UFG allowance instead of 4.5 percent determined by Ogra. Even if for a moment, one discounts the debate of 4.5 and 7 percent, the actual UFG losses have mounted to 12.99 percent and 11.79 percent, respectively, as per the latest available statistics.
Now the government seems to be batting for the two discos, reportedly having asked for altering the UFG definition by adding non-recovery, security related losses, village gasification and the impact of change in bulk-retail ratio. The change has been demanded in the name of ground realities--which may well be true to an extent--but the biggest of all ground realities is that both the discos are extremely inefficient in curtailing the losses and managing the operations and have only become worse than ever before.
There is no denying the dynamics of gas supply have changed over the years, but the government is itself to blame for it. The gas-for-all policy was never going to work and the bulk-retail ratio has worsened from 40:60 five years ago to 24:76 now. Experts have been saying it for ages that uneconomic gas supply will further add to UFG losses and add strain on the financials.
That said former bosses of the two discos do not mince words while criticizing the performance. The rampant corruption, political hiring and extremely inefficient workforce have been tagged as key weaknesses. Yes, the security-related problem is there, but there is no point taxing the taxpayer further in the form of adding these losses to the consumer tariff.
Inefficiencies often become excuses and then norms in Pakistan, especially in the energy sector. The PML-N in its national energy policy categorically highlighted reducing UGF to 5 percent as one of the key gas sector reforms. The government should do whatever it takes to reduce the UFG, instead of making more room for inefficiencies and burdening the masses.
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