OGRA recommends a decrease in gas prices for FY25, SNGP Petition Denied
Overview
The Oil and Gas Regulatory Authority (OGRA) has made a significant decision regarding gas prices for the fiscal year 2025 (FY25). Sui Northern Gas Pipelines Limited (SNGP) had requested an increase in gas prices, but OGRA’s determination suggests a decrease instead. This decision stems from differences in the treatment of Late Payment Surcharge (LPS) and the cost of diverted Re-gasified Liquefied Natural Gas (RLNG).
Details
SNGP had proposed an increase of approximately Rs475/mmbtu, aiming to bring the average gas prices to Rs2,277/mmbtu for FY25. However, OGRA has recommended a decrease of Rs180/mmbtu, setting the average price at Rs1,636/mmbtu. The major discrepancy between OGRA’s review and SNGP’s petition is primarily due to the disallowance of LPS amounting to Rs123 billion and a lower RLNG diversion cost than requested, resulting in a difference of Rs114 billion.
Historical Treatment
In recent years, OGRA has consistently disallowed adjustments for LPS in tariff determinations, citing concerns about shifting the burden of circular debt to general consumers. Similarly, the cost of RLNG diversion has been scrutinized, with OGRA allowing only a portion of the requested amount based on previous trends and justification provided by SNGP.
Impact Analysis
While the exact impact on SNGP is yet to be determined, OGRA’s decision to allow a lower return on net operating assets compared to SNGP’s request might affect the company’s earnings projections. However, if finance costs are passed through to consumers, it could lead to a significant upside in earnings estimates. Additionally, the gas sector’s circular debt situation remains uncertain, depending on factors such as oil prices, exchange rates, and actual RLNG diversion to consumers.
Conclusion
OGRA‘s decision to decrease gas prices for FY25, contrary to SNGP’s petition, reflects a cautious approach toward managing circular debt and ensuring affordability for consumers. The impact on SNGP’s earnings and the gas sector’s circular debt situation will be closely monitored as the fiscal year progresses.
Here is the table you requested:
| Average Net Operating Fixed Assets | Determination By | Petitioned by SNGP FY 25 | Difference | REER FY24 | REER FY23 | FRR FY22 |
|---|---|---|---|---|---|---|
| Macro Assumptions | ||||||
| Oil Prices (Jul to Dec 2024) | 85 | 80 | 5 | |||
| Oil Prices (Jan to Jun 2025) | 84 | 85 | -1 | |||
| Exchange Rate (Jul to Dec 2024) | 278 | 300 | -22 | |||
| Exchange Rate (Jan to Jun 2025) | 280 | 310 | -30 | |||
| Operations Assumptions | ||||||
| Net volumes sold (MMCF) | 387,192 | 414,491 | -27,299 | 371,112 | 302,968 | 332,877 |
| A Total Income | 691,877 | 733,684 | -41,807 | 452,653 | 197,065 | 187,392 |
| B Expenses | 596,852 | 887,746 | -290,894 | 590,692 | 289,719 | 236,221 |
| Cost of Indigenous gas | 373,524 | 404,498 | -30,974 | 332,558 | 264,020 | 205,051 |
| Cost of RLNG diverted | 183,546 | 297,913 | -114,367 | 231,916 | – | – |
| UFG Disallowance | -8,992 | -750 | -8,242 | -14,771 | -9,821 | -2,498 |
| Net operating cost | 23,923 | 33,965 | -10,042 | 18,814 | 14,690 | 15,482 |
| Depreciation | 22,701 | 24,129 | -1,428 | 19,036 | 18,342 | 13,833 |
| Late Payment Surcharge | – | 123,017 | -123,017 | – | – | 387 |
| Finance Cost for Working Capital | – | 2,305 | -2,305 | 838 | 1,060 | – |
| Others | 2,150 | 2,669 | -519 | 2,301 | 1,428 | 3,966 |
| Average Net operating Fixed Assets | 108,214 | 127,515 | -19,301 | 91,536 | 99,553 | 125,044 |
| Required Return in % | 25.92% | 27.12% | -1.20% | 20.64% | 16.60% | 16.60% |
| C Required Return | 28,049 | 34,582 | -6,533 | 18,893 | 16,526 | 20,757 |
| D = A-B-C Total (Shortfall)/Surplus | 66,976 | -188,644 | 255,620 | -156,932 | -109,180 | -69,586 |
| (Increase)/Decrease in Avg Price | 179 | -475 | 654 |
Disclaimer:
The information in this article is based on research by Topline Research. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.
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