As a result of rising political pressure owing to prevailing price hike, the Prime Minister Office is seeking a drastic cut to revenue requirements of the two gas utilities for current fiscal year to minimise increase in gas rates.
The move is likely to shed negatively on the ongoing talks with the International Monetary Fund (IMF), embarrass Oil and Gas Regulatory Authority (Ogra) that had determined the prescribed gas prices and affect the financial position of the Sui Northern Gas Pipelines Limited and Sui Southern Gas Company Limited.
A senior official at the Petroleum Division said a set of three measures would together cause a financial loss of Rs18 billion to the gas utilities this year while the Petroleum Division had been advocating an increase in gas tariff to generate Rs35bn in additional revenue in line with tariff determinations by the Ogra.
Special Assistant to the Prime Minister on Petroleum Nadeem Babar did not respond to request for comments when approached on whether the Petroleum Division under his administration supported the PMDU initiative. Finance ministry’s spokesperson was also not available to comment if this would affect talks with the IMF.
To comply with the Prime Minister’s directives, the PMDU has ordered a decrease in the rate of return for the two gas utilities from 17-17.5pc at present to 15pc. A petroleum ministry official said the 15pc rate of return did not even meet the cost of financing the gas utilities currently dependent on commercial banks owing to huge amounts stuck up with the government.
The situation instead of getting resolved through rationalisation of the gas prices in respect of fuel parity pricing had now been further compounded by the PMDU’s instructions to cut revenue requirement of gas companies. The PMDU has no legal authority to override Ogra law and become the elite gas pricing organisation in the country, an Ogra official said but explained that it was up to the government how it planned to meet finances of the gas companies.
The government had given an undertaking to the IMF to ensure timely update gas tariffs and had committed to “adjust tariffs by end-December 2019 based on Ogra’s mid-year decision on tariffs”.
The IMF mission had left Islamabad on Feb 14 after inconclusive talks because of unfinished agenda on electricity and gas rates and revenue shortfalls.
