ISLAMABAD: The International Monetary Fund observed that high unaccounted for gas losses (UFG), often delayed sales price adjustments, uncovered subsidies (especially for export and zero-rated industries), and collection short falls has led to a substantial circular debt (CD) stock of more than 1 percent of GDP in the gas sector.
This was noted in the report titled IMF’s Executive Board Concludes 2021 Article IV Consultation for Pakistan and Completes the Sixth Review of the Extended Fund Facility and Staff Report, released on Saturday. To turn around the gas sector the government agreed with the IMF that this objective requires action on several fronts and is currently working on revising end-user prices, which when implemented would be the first since September 2020.
Staff reiterated the importance of the parliamentary adoption of the OGRA Act by end-June 2022 (end-June 2021 SB; reset to end-June 2022) to support regular and full cost recovery going forward. Moreover, the two Transmission and Distribution (T&D) companies have stepped up measures to bring down UFG losses (including through infrastructure improvements, network rehabilitation and theft control programs). Staff noted that the unbundling of the T&D companies would further incentivize a speedy implementation of these UFG-reducing programs. While the recently introduced regular UFG monitoring reports help transparency and better planning, steadfast implementation of cost-reducing reforms is needed as well as the establishment of accountability and mitigation measures for missed UFG targets.
Based on an ongoing assessment of available data from OGRA and the two gas sector companies, government says it currently estimates the circular debt stock in the gas sector to have increased to about Rs 654 billion end June 2021 (with Rs 554 billion in system gas arrears and about Rs 100 billion in RLNG arrears).
Recognizing this development, the government is taking measures to improve the sector’s performance through updating tariffs. Based on the receipt of OGRA’s determination of the annual Estimated Revenue Requirement (ERR) for Financial Year 2022 since September 2021, the process of revising consumer gas prices is under way so that the flow of circular debt and its addition to the existing stock is restricted and/ or minimized. This will be the first gas price adjustment since September 2020, as previous determinations were not implemented in view of the COVID-19 shock and high inflation.
Parliament will adopt amendments to the OGRA Act before end-June 2022 (end-June 2021, reset to end-June 2022). This will support timely notification of OGRA determinations in the future.
Reducing unaccounted for gas losses (UFG): The government published second UFG monitoring report covering Financial Year 2021 in November 2021, which covers the: (i) progress against benchmarks; (ii) impact of initiatives and measures; and (iii) assessment of contingency measures to address weaknesses. Accordingly, both Sui companies over-performed relative to their annual UFG reduction targets during Financial Year 2021, thus making tangible progress toward the benchmark allowed by OGRA of 7.5 percent. To make further headway in improving their profitability in terms of reducing disallowances in revenue requirements, the Sui companies are taking further steps to reduce their UFG, by system revamping mainly by replacing the under and over ground leaking transmission network and curtailing the gas pilferage by consumers through illegal taps and increased vigilance.
Copyright Business Recorder, 2022