The profit of gas utilities has swelled to 21 percent following a guaranteed return on assets based gas pricing formula.
At present, the gas utilities, SNGPL and SSG, are operating on a fixed rate of return on assets, whose profits reached 21 percent during the year 2024-25.
It was informed during the public hearing that during FY 24–25, SNGPL and SSGC earned a return of 21% on their Net Regulated Fixed Asset Base. On indigenous gas sales, this amounted to Rs36,754 million for SNGPL and Rs 19,978 million for SSGC.
On RLNG sales, a return of Rs 7,335 million was earned by SNGPL, and Rs 6,671 million was earned by SSGC.
The consultant KPMG hired by Ogra has proposed a Rate of Return mechanism which includes a Target Return on Equity Capital Base of a gas company, which is calculated based on the cost of equity – Capital Asset Pricing Model (CAPM).
It said that the base Return on Equity Capital Base will be 80%, and 20% will be linked with efficiency targets.
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During the public hearing, the chief executive officer (CEO) of Tabeer Energy Mr Shahid, said that gas utilities need a guaranteed rate of return formula, which kills their efficiency. He said that constant had still maintained the same stream of return, which would kill the efficiency of the gas utilities.
“ The gas utilities will be getting the 80 percent return even if the gas utilization stands low,” he said, adding that there was no mechanism in place to differentiate the indigenous gas and LNG. There has been a serious lack of data transparency,” he said, adding that this is the reason that circular debt is increasing every year.
UGDC head of finance said that they had operated the first gas company in the private sector among the natural monopolies of SNGPL and SSGC. He said that their gas system was smooth despite the monopoly of these gas utilities.
He further said that financial cost and even depreciation cost was inlcuded in the operating cost of gas utilities. “ Gas utilities are making profits from the consumers due to higher price and they are transferring these profits to shareholders,” he said, adding that there is no need of guaranteed rate of return on assets in this situation.
Managing Director SSGC Amin Rajpoot said that the profitability of the gas companies had jumped due to high interest rates during the last few years.
“If you look balance sheet of the gas utilities, they are operating with huge challenges,” he said, adding that these companies have laid 0.2 million kilometers of network and made huge investments due to the guaranteed rate of return formula.
He further said that the government had not increased gas prices for three years, which had increased circular debt.
“There should be a change in one segment rather than a sudden change in the entire regime of gas pricing formula,” he said.
Deputy Managing Director (DMD) SNGPL Faisal Iqbal said that a guaranteed rate of return was imposed on the gas utilities to maintain the normal gas tariff.
“ Guaranteed rate of return is given in a regulated regime to maintain a normal tariff,” he said, adding that circular debt was a result of keeping gas prices unchanged.
“This is a very unreasonable return ( proposed by KPMG),” he urged the regulator to introduce a mechanism to make the gas companies financially viable and the gas sector stable.
Mr Saeed consultant, said.”We must exercise caution when using the power sector’s return formula as a benchmark for the gas sector due to fundamental differences in capital structure.
Unlike the gas utilities, he said that many power sector companies have minimal commercial debt and operate with low leverage.
Gas companies are currently “cash-strapped” and heavily leveraged. Applying a formula designed for debt-free or low-debt entities to heavily indebted utilities may result in a return that fails to cover actual financial obligations,” he said, adding we must scrutinize this practice before adopting it as a standard for the gas sector.
