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

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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.