ERR determination: KATI contests core points of gas company petition

ISLAMABAD: The Korangi Association of Trade and Industry (KATI) has strongly opposed key elements of Sui Northern Gas Pipelines Limited’s petition for determination of Estimated Revenue Requirement (ERR) for FY 2026-27, urging the Oil and Gas Regulatory Authority (OGRA) to reject unjustified costs, ensure transparency and protect industrial consumers from additional financial burden.

In its detailed written submission to OGRA, KATI maintained that no increase in the indigenous gas prescribed price is warranted for FY 2026-27, citing SNGPL’s own tariff calculations which show that the existing price of Rs 1,757.20 per MMBTU is sufficient to cover operational costs and provide a return on assets.

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The association noted that SNGPL’s indigenous gas business is projected to generate a surplus of Rs 21.6 billion during the year, indicating that the current tariff structure adequately supports the company’s core operations.

However, KATI raised serious concerns over a massive prior-year shortfall of Rs 554.87 billion claimed by SNGPL, arguing that the amount is unaudited and cannot be passed on to consumers without independent verification. The association pointed out that the company has already filed review petitions against previous determinations, and until those are decided, the shortfall cannot be treated as a settled liability.

KATI warned that if the entire shortfall is recovered in one go, it could effectively double gas prices for industrial consumers, severely damaging competitiveness. It proposed that any verified amount should be recovered gradually over a minimum period of ten years.

The association also highlighted discrepancies in SNGPL’s petition, noting that two different prescribed prices — Rs 1,757.20 and Rs 1,784.50 per MMBTU — have been quoted in separate versions of the filing without explanation, and called on OGRA to seek clarification. On the return on assets (ROA), KATI acknowledged the principle of allowing a reasonable return but questioned the sharp increase in RLNG-related assets, which grew by over Rs 17 billion in a single year. It urged OGRA to verify that these assets are genuinely owned by SNGPL and do not include infrastructure belonging to third parties.

KATI also flagged significant inefficiencies in SNGPL’s RLNG operations, where the company has projected a deficit of Rs 69.3 billion. The association criticized high working capital finance costs of Rs 18.5 billion, calling them excessive and indicative of weak treasury management. It recommended capping such costs at benchmark rates. Similarly, it raised concerns over Rs 15.3 billion in transportation charges paid to Sui Southern Gas Company (SSGCL), describing it as a related-party transaction that must be independently audited to ensure it reflects market-based pricing.

The association further questioned the allocation of Rs 28.1 billion in human resource and shared costs to the RLNG segment, demanding transparency in cost allocation methodologies.

KATI identified multiple areas of operational inefficiency in SNGPL’s cost structure, including high human resource expenses, rising doubtful debt provisions, and excessive security costs. It argued that project-specific security expenditures, such as those for Kot Palak and Bannu pipelines, should be treated as capital expenditure rather than recurring operational costs.

The association also criticized discretionary spending, including Rs 379 million allocated to sports activities, stating that such expenses should not be recovered through consumer tariffs, particularly in a period of financial stress.

A major concern highlighted by KATI was the high level of Unaccounted for Gas (UFG), which stands at 8.85 percent overall and 11.07 percent in distribution. It termed this level “excessive” by international standards and noted that it results in significant financial losses borne by consumers.

KATI pointed out that RLNG losses are significantly lower at 2.18 percent, suggesting that inefficiencies in measurement and management of indigenous gas are a key issue. It urged OGRA to set stricter benchmarks and initiate a structured plan to reduce UFG to 6 percent over five years.

On capital expenditure, KATI questioned the front-loading of Rs 23.9 billion under measuring and regulating equipment, compared to a steady annual level of Rs 9 billion in subsequent years. It termed this increase unjustified and inflationary for the tariff base. The association also expressed concern over the absence of investment in SCADA systems, which are critical for monitoring gas flows and reducing losses. It recommended making SCADA deployment a mandatory condition for tariff approval. KATI further criticized the existing cross-subsidy regime, under which industrial consumers pay significantly higher gas prices to subsidize domestic and power sector consumers. It described this as an implicit tax on industry and called for shifting such subsidies to the federal budget for transparency and accountability.

Summarizing its position, KATI estimated that efficiency improvements in areas such as UFG reduction, better debt management, rationalized security costs, and digitization could save Rs 20-25 billion annually without any increase in tariffs.

The association urged OGRA to adopt a more transparent and efficiency-driven regulatory framework, including a transition from the current cost-of-service model to a revenue-cap or price-cap regime that incentivizes performance. KATI concluded by requesting the regulator to place its submission on record and allow industrial stakeholders adequate opportunity to present their case during public hearings.

Copyright Business Recorder, 2026