SNGPL’s Stance on Gas Price Determination

Lahore (PNI) Reference news items published in the media regarding inclusion of inflated HR cost in the gas pricing and increase in gas price three times in the current year.

In this respect it is highlighted that the Operating Cost including the HR cost is only 4% of the total gas price. 94% is cost of gas alone, while rest is return on CAPEX.

Key Reasons for Increase in Price:
i. Our indigenous gas resources are continuously depleting which has necessitated the diversion of RLNG to domestic sector consumers particularly during the winter period. Average cost of RLNG is about Rs. 3,500 / MMBTU while Domestic Sector Average Sale Price is around Rs. 1,100 / MMBTU. This differential amounting to Rs. 231 Billion has also necessitated the current price increase since cost of diverted RLNG has to be recovered to keep the LNG supply chain functional.
ii. Cost of indigenous gas has also increased by Rs. 69 Billion.
iii. Pak Rupee has devalued by 55% during the last two years alone while all Gas Purchase contracts are U.S.$ denominated and linked with Crude Oil / Furnace Oil prices.

It is to point out that despite recent increases in gas prices, average rate of gas for protected class of domestic consumers is Rs. 513 per MMBTU which is much lesser than cost price of Rs. 1,674/MMBTU. 4.4 million consumers of SNGPL network fall in the protected category which is 60% of the total consumers and whose bills during winter month of February remained less than Rs. 2,000 (inclusive of taxes).

It is pertinent to mention here that despite the recent price increases, a subsidy amounting of Rs. 128 Billion is projected to be provided to the domestic consumers of SNGPL during FY 2023-24.

It is further highlighted that gas business in Pakistan is highly regulated and is governed under OGRA Ordinance, 2002. OGRA, in order to determine revenue requirements of gas companies has been holding public hearings since 2002. OGRA hold public hearings twice a year for determining the gas prices.

The current public hearings being conducted by OGRA are for FY 2024-25 which will become effective from July 1, 2024 and is not going to lead to any changes in gas price at this time.