In a move that make some progress towards address the burgeoning circular debt in Pakistan’s gas sector, the Oil and Gas Regulatory Authority (OGRA) has approved substantial price increases for the country’s two main gas distribution companies. The decision, announced on December 18, 2024, allows Sui Northern Gas Pipelines (SNGP) and Sui Southern Gas Company (SSGC) to raise their gas prices by 8.8% and 26% respectively.
This regulatory action is part of a broader strategy to tackle the complex issue of circular debt that has plagued Pakistan’s energy sector for years. The price hikes are expected to help these state-owned companies reduce their receivables and improve their financial health, potentially easing the strain on the country’s economy.
OGRA’s decision comes in response to review petitions filed by both Sui companies for their revenue requirements for the fiscal year 2025. The regulatory body has recommended these price increases as part of the ongoing efforts to align gas tariffs with the actual cost of supply.
For SNGP, OGRA has allowed an Average Operating Asset (AOA) of Rs108.6 billion, which is largely in line with the previously approved figure from May 20, 2024. The required return on assets has been set at 25.9%. Additionally, OGRA has now permitted 50% of the finance cost on running finance to be passed through, an increase from the earlier approval of 25%.
These adjustments are expected to have a significant impact on SNGP’s financial performance. With the approved assets and return rate, SNGP’s return on assets is projected to be Rs37.8 billion, including a Rs9.7 billion return on RLNG assets. After accounting for Unaccounted for Gas (UFG) disallowance and finance costs, analysts at Topline Securities estimate SNGP’s earnings could reach Rs17.3 per share, with potential to increase to Rs28.2 per share if 100% finance cost on running finance is allowed. The content in this publication is expensive to produce. But unlike other journalistic outfits, business publications have to cover the very organizations that directly give them advertisements. Hence, this large source of revenue, which is the lifeblood of other media houses, is severely compromised on account of Profit’s no-compromise policy when it comes to our reporting. No wonder, Profit has lost multiple ad deals, worth tens of millions of rupees, due to stories that held big businesses to account. Hence, for our work to continue unfettered, it must be supported by discerning readers who know the value of quality business journalism, not just for the economy but for the society as a whole.To read the full article, subscribe and support independent business journalism in Pakistan
