The participants of a public hearing before the Oil and Gas Regulatory Authority (Ogra) strongly opposed SSGC's petition and said that any further increase in gas prices would have adverse economic and financial impact on gas consumers.
The public hearing on a review petition by Sui Southern Gas Company Limited (SSGC) was held here on Monday. M H Asif, Member, Finance, Ogra, chaired the proceedings. The hearing was attended by representatives of various associations and stakeholders like consumers, public, management of the SSGC and other interveners.
The SSGC made its submissions seeking increase of Rs 97.73 per MMBTU in prescribed price from December 1 to overcome the shortfall of Rs 22,262 million in Estimated Revenue Requirement for FY 2008-09.
The review petition was filed consequent upon changes in wellhead prices and estimates of gas off-takes since Ogra determination of May 20, this year, in which the estimated revenue requirement for the said year was determined at Rs 114,768 million, as against Rs 117,151 million claimed by the petitioner thereby decreasing the estimated revenue requirement by Rs 2,383 million:
Azim Iqbal, deputy managing director of SSGC made a passionate appeal for allowing his plea. He said that it was desperate time for the SSGC because the cost of borrowing is not passed through to the customers. He said that the company will be facing a shortfall of Rs 22,262 million in Estimated Revenue Requirement (ERR) for FY 2008-09 mainly due to increase in oil prices and continuous devaluation of Pak rupee against dollar.
He said that SSGC was facing a severe liquidity crunch consequent upon already increased cost of gas even in first half of the year. He requested the Authority to grant interim relief under Rule 5(7) of Natural Gas Tariff Rules, 2002 to compensate for sharp increase in cost of gas and approve an increase of Rs 97.73 per MMBTU in SSGC's prescribed prices effective December 1, 2008 urgently.
Mateen Khan, General Manager (Regulatory Affairs) SSGC said that Pak rupee has been devalued by around 18 percent against the US dollar during the last three months. Former president of KCCI Zubair Motiwala strongly opposed SSGC's petition and said that any increase in gas prices would further increase the already very high cost of production of goods. He said that the increase in cost of production will affect the industry's competitiveness in the international market.
He said that many of the industrial units have already closed down due to frequent increase in the prices of gas and any further increase will completely destroy the industry.
Muhammad Nisar Shekhani, Chairman of SITE Association of Industry said that SITE members believe that this Authority does not enjoy the powers that a Regulating Authority should and at the end of these exercises, the rates are enhanced anyway, irrespective of the arguments and the prevailing ground realities.
He said that in terms of the agreement, wellhead gas price for each ensuing year is determined in accordance with the principles of gas price formula set out in Article II of the Agreement. The Agreement states that the gas price will be at the minimum level to ensure that total revenues generated from sale of gas and other income are sufficient to provide a minimum return of 30 percent, net of all taxes, on shareholders' funds (as defined in the agreement) after meeting specified ratios and deductibles. The return to shareholders shall be escalated in the event of increase in the company's gas production beyond the level of 425 MMSCFD at the rate of one percent, net of all taxes, on shareholders' funds for each additional 20 MMSCFD of gas or equivalent oil produced, prorated for part thereof on annual basis, subject to a maximum of 45 percent.
He said that increase in gas prices, 40 percent proposed on industry in the new Petition would further increase the already very high cost of production of goods, reducing the industry's competitiveness in the international market.
He suggested that the wellhead pricing formula and petroleum policy must be immediately reviewed to bring down the cost to bearable level. The linkage of indigenous gas with international oil prices is irrational and unjustified. Increase in oil prices is resulting in windfall gains for gas exploration companies as there is no increase in their cost structure, their fields having been in production for quite some time.
The annual accounts of the gas exploration companies are showing phenomenal growth in profits mainly due to lacunae in wellhead pricing formula, he maintained asking the Authority to intervene in public interest, and reduce the well head prices to provide relief to consumers at large.
Imtiaz Haider, representative, of AKD Securities, and Muhammad Arif Bilwani also presented their views. The chair, while closing the hearing, announced that decision on the petition would be given in about 10 to 12 days.
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