Budget 2016-17: decision against proposed gas tariff raise could pose challenge

The government may have to adjust as much as Rs 60 billion in the budget for the current fiscal year if it decides against the proposed 12 percent increase in tariff as determined by the Oil and Gas Regulatory Authority (OGRA). The spokesman for Ogra, Afzal Bajwa said as per law the government is required to give reasons along with details of financing to the regulator if it chooses not to implement the determination of the regulator.
He further revealed that under the license contracts, One clause stipulates that the Ogra from time to time and in accordance with the rules determine total revenue requirement of the Licensee to ensure a 17 percent return for Sui Southern Gas Company Limited (SSGCL) and 17.5 percent for Sui Northern Gas Company Limited (SNGPL) (before financial charges and tax) on the value of its average net fixed asset in the operation of each financial year. This would amount to Rs 60 billion, Bajwa stated.
New gas tariff was determined by the regulator on the basis of the revenue requirement of gas companies as well as their future expansion plans. Another official told Business Recorder that SNGPL and SSGCL had filed petitions with the regulator seeking an increase in gas price and cited revenue requirement, expansion plans and increase in oil prices in the international market as reasons. The government has to decide whether it wants to notify and pass on new gas tariffs to consumers or wants to extend a subsidy, he added.
Sources on condition of anonymity stated so far gas companies had been absorbing far higher losses on account of Unaccounted for Gas (UFG) than the allowed losses from their own profit. If this practice continues the survival of gas companies would be at stake, they added.