ISLAMABAD: Pakistan’s two major public sector gas utilities, Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC), have earned more than Rs300 billion in profits over the past seven years, primarily by charging consumers returns on their fixed assets rather than improving operational performance, according to official documents of the Oil and Gas Regulatory Authority (OGRA).
OGRA documents reveal that from FY2019 20 to date, both companies collectively earned Rs305 billion as guaranteed returns on fixed assets. During this period, Sui Northern earned Rs196 billion, while Sui Southern earned Rs109 billion from consumers.
The Oil and Gas Regulatory Authority (OGRA) is currently in the process of public consultations on the revision of Rate of Return (ROR) study conducted by KPMG for transmission and distribution companies operating under the existing tariff regime for the natural gas sector. As part of the consultation process, OGRA has already held public hearings in Lahore, Islamabad, Karachi and Peshawar to gather feedback from stakeholders. Another public hearing is scheduled to take place today (Wednesday) in Quetta.
At present, gas companies receive a market based rate of return under the Weighted Average Cost of Capital (WACC) model, which varies according to market assumptions and the value of net regulated fixed assets in operation. The documents show that the companies were allowed returns ranging from 17 percent to as high as 26 percent on their fixed assets. Over the last seven years, Sui Northern charged consumers a 17 percent return four times, a 21 percent return twice, and a 26 percent return once. Similarly, Sui Southern continued to earn returns between 17 percent and 26 percent during the same period.
Critics argue that this mechanism placed a heavy financial burden on gas consumers, as the companies relied on asset based profits instead of improving efficiency, reducing losses or enhancing service quality. Despite persistent issues such as gas shortages, line losses and operational inefficiencies, both utilities continued to secure high, guaranteed returns.
OGRA officials have acknowledged the issue and confirmed that work is underway to revise the profit determination mechanism. According to officials, the regulator is now moving toward linking company profits with performance indicators, rather than allowing automatic returns solely on the basis of fixed assets. OGRA officials said that stakeholders’ input will play a critical role in finalising the revised methodology, which aims to reduce the consumer burden while encouraging the gas utilities to improve performance and accountability.
