ISLAMABAD: While opposing the introduction of a fixed Rate of Return (RoR) regime for Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL), the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has proposed the constitution of a stakeholders’ working group — comprising industry, consumer representatives, and technical experts — to develop the details of an alternative hybrid regulatory model.
Commenting on Ogra’s consultative study on the revision of the Rate of Return methodology for gas utilities, the FPCCI noted that the 2025 KPMG study had already presented a range of regulatory options, including floating versus fixed RoR, Return on Equity (RoE) versus Regulatory Asset Base (RAB) models, as well as price-cap and revenue-cap mechanisms. The forum urged Ogra to select options that promote accountability and efficiency.
FPCCI stressed that the policy framework should be updated accordingly—either through new Ogra rules or a policy directive — to formally move away from the pure fixed RoR approach. Ogra, it added, could then implement the revised regime in forthcoming tariff determinations from FY2025-26 onward, with suitable transitional arrangements to allow utilities to adjust their finances and operations.
In its detailed comments, FPCCI emphatically opposed the introduction of a fixed RoR regime for SNGPL and SSGC as outlined in Ogra’s 2025 consultative report. While appreciating the regulator’s intent to reform tariff methodology, the forum warned that a simplistic fixed RoR would entrench the very problems it seeks to resolve —masking inefficiencies, burdening consumers with inflated tariffs, and weakening incentives for utilities to improve performance.
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According to FPCCI, evidence from Ogra’s own study and international benchmarks leads to an “incontrovertible conclusion” that incentive-based regulation outperforms cost-plus regulation in delivering affordable and reliable energy. Pakistan’s legal and policy framework, it argued, is not only compatible with such modern regulatory approaches but explicitly demands them, as the OGRA Ordinance and Third Party Access (TPA) Rules call for fair, transparent, and competitive outcomes that a fixed RoR regime cannot guarantee.
FPCCI proposed the following actions: (i) OGRA should reject a fixed RoR regime for gas utilities in its final determination and instead retain a flexible Weighted Average Cost of Capital (WACC)-based approach, augmented with performance incentives and efficiency adjustments. The next tariff determination should incorporate efficiency factors — such as Unaccounted for Gas (UFG) and pipeline utilisation benchmarks identified in the KPMG draft — to immediately align returns with actual performance; (ii) Ogra should announce a transition to multi-year tariff periods with an associated efficiency (X) factor and a profit-sharing mechanism. As a pilot, a two-year control period for FY2025-26 and FY2026-27 could be introduced with predefined targets, sending a clear signal for cost-cutting and innovation rather than complacency under guaranteed returns; (iii) A tariff reform working group should be formed and broad public consultation undertaken on the design of an incentive-based regime. Ogra should also coordinate with the Ministry of Energy (Petroleum Division) to secure any necessary policy directions under Section 7 of the OGRA Ordinance and may seek technical assistance from countries that have implemented RIIO-type regulatory models; (iv) If Ogra encounters legal constraints in implementing performance-based regulation, the FPCCI expressed its willingness to support appropriate amendments to the OGRA Ordinance or Tariff Rules. It noted, however, that Ogra already enjoys broad authority under Sections 6(2)(r) and 6(2)(s) to prescribe and regulate tariffs, which should encompass such measures. The TPA Rules could also be refined to explicitly mandate efficiency-based tariffs for network operators; and (v) alongside regulatory reforms, Ogra must strengthen monitoring of SSGC and SNGPL performance. Annual reports and audits should specifically assess progress on loss reduction, new connections, and cost benchmarks. Failure to meet minimum standards — such as government-set UFG targets — should result in tangible tariff consequences, including reduced allowed returns.
“By implementing these recommendations, Ogra will be acting squarely within its mandate to protect the public interest and ensure just and reasonable tariffs, while paving the way for a more competitive and efficient gas sector,” the FPCCI said. It added that SNGPL and SSGC, freed from guaranteed returns, would be compelled to become leaner and more customer-focused—an outcome that would ultimately prepare them for a future marked by competition, privatisation, or public-private partnerships.
FPCCI urged OGRA to seize this opportunity to shift the regulatory paradigm, reject the fixed RoR regime, and replace it with a forward-looking, performance-driven tariff framework that genuinely serves Pakistan’s economic and energy needs. Such a move, it said, would uphold the law and policy objectives under the OGRA Ordinance and TPA Rules while restoring confidence among consumers and investors.
Meanwhile, industrial consumer Rehan Javed observed that under the current proposal, SSGC and SNGPL would continue to earn a 17 percent return on assets regardless of performance, a factor that directly inflates average gas prices.
“This must be changed; otherwise, within the next four years, local gas will become more expensive than RLNG,” he warned.
Copyright Business Recorder, 2026
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