Pakistan’s major gas utilities, Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) have strongly opposed a proposal to scrap the guaranteed fixed asset-based return mechanism. The companies have urged the government to continue with the existing gas pricing and return regime.
The proposal was initiated after the government tasked the Oil and Gas Regulatory Authority with restructuring public gas utilities. OGRA hired consultancy firm KPMG to review the current asset based return formula and the firm has submitted its findings.
Rising Costs, Profits and Consumer Burden
As Pakistan’s gas pipeline network continues to expand, both gas prices and utility profits have increased, placing a growing financial burden on consumers. Despite higher profits, gas availability has declined due to supply constraints.
SNGPL’s operating cost rose sharply from Rupees 66 billion in FY2020 to Rupees 94 billion in FY2024. During the same period its earnings nearly doubled from Rupees 19 billion to Rs38.9 billion even as gas supplies dropped. This trend has fueled criticism from industrial consumers.
Utilities Defend Asset-Based Return Model
SNGPL and SSGC argue that the asset-based return formula cannot be abandoned, as several regulatory benchmarks particularly unaccounted-for-gas (UFG) are directly linked to it. According to the utilities, removing the formula without legal and regulatory clarity could disrupt the sector.
Industry Criticism and Legal Review Demand
Industrial stakeholders have repeatedly criticized the fixed rate of return, saying it allows utility profits to rise while gas supplies shrink. They have proposed engaging a law firm to review the legal framework, especially for applying a uniform UFG benchmark across all stakeholders.
The consultant also proposed a plan to resolve the gas sector’s circular debt within three months, though questions remain over funding sources.
Circular Debt Reaches Rs2.6 Trillion
Gas companies are currently facing a massive circular debt of Rs2.6 trillion, affecting the entire energy value chain. The heavy reliance on imported LNG has worsened the situation, as SNGPL must make large payments to Pakistan State Oil (PSO) for LNG supplies.
SSGC management has pointed out that while KPMG has completed its work, cash inflow sources remain unclear, making quick resolution of circular debt challenging.
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Losses, UFG Dispute and RLNG Expansion
Low bill recovery and high gas losses particularly in Balochistan which accounts for 40% of total losses have added to SSGC’s financial strain. OGRA has set SSGC’s UFG limit at 12.07% for FY25, but the company is contesting it aiming to reduce it to 10% which could save Rs1 billion per 1 bcf reduction.
SSGC plans to add 50,000 RLNG connections from July 2026, as RLNG is around 30% cheaper than LPG. Currently, thousands of applications are under process, mainly for multi-storey buildings.
Future Projects and Supply Adjustments
SSGC’s major projects include:
- Rehabilitation of 2500 km gas distribution network (Rs28 billion)
- A new transmission pipeline (Rs10 billion)
- Expected annual capital expenditure of Rs40 billion, subject to cash flow
Gas supply to captive power plants has declined due to an off-grid levy, but the company expects demand to remain stable due to unreliable grid power.
Conclusion
The debate over ending the fixed asset based return highlights deep structural issues in Pakistan’s gas sector. While the government and regulator aim to reduce consumer burden and inefficiencies, gas utilities warn that scrapping the current model without legal and financial clarity could destabilize the system With Rs2.6 trillion circular debt, rising costs and shrinking gas supplies, meaningful reform will require balanced decisions, transparent regulation and sustainable cash flow solutions.