Gas tariff hike on the cards – Alfalah Securities Limited

Karachi: The Oil and Regulatory Authority (Ogra) has raised the gas tariff for Sui Northern Gas Pipelines Limited (SNGPL) by PkR 43.93/mmbtu (up 14%) and Sui Southern Gas Company (SSGC) by PkR 34/mmbtu (up 11%) which would be applicable from the start of next calendar year.

According to Alfalah Securities, the increase in gas tariff would enable SNGPL and SSGC to cover Unaccounted for Gas (UFG) losses of worth PkR 16 bn while also raising an additional PkR 15 bn on account of new development schemes. Moreover, SNGPL and SSGC would also be able to increase their revenue base as they had posted a revenue shortfall of PkR 8.4 bn and PkR 6.25 bn respectively however their profitability would not be affected as these gas companies operate on a fixed return formula. A hike in gas tariff would result negatively for different sectors of the economy such as fertilizers and textiles that utilizes gas as a major raw material and their cost of production would increase significantly which would ultimately reduce their gross margins.

The government has also decided to increase the prices of Compressed Natural Gas (CNG) by PkR 4.5/kg in order to bring CNG at a parity level of 55% with petrol. The additional revenue generated from this price hike would be utilized for developing Pakistan-Iran pipelines, Turkmenistan-Afghanistan-Pakistan-India gas pipelines and Liquefied Natural Gas (LNG) pipeline from Karachi to Lahore under the “Gas Development Surcharge (GDS)”. An increase in CNG prices would have severe effects on the economy as a huge segment of the society consumes CNG as fuel in their vehicles which would increase the transportation cost.

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