Another energy-tough year in the wings

Concluding a tough year (2022) in terms of record energy prices, the people of Pakistan are unlikely to see any noticeable relief over the next 12 months, except maybe some election-related tinkering with pricing that would, at best, be short-lived.

Unfortunately, the fundamentals for affordable energy on a sustainable basis are not yet right.

The gas regulator - Oil & Gas Regulatory Authority (Ogra)- increased the prescribed price of natural gas by 45 per cent for two gas utilities - Sui Southern Gas Company Limited and Sui Northern Gas Pipelines Limited in the first week of June. The resultant increase in consumer-end prices has still not been issued despite a mandatory 40-day deadline. This was on top of a price freeze maintained by the former PTI government.

The double-dose backlog had to come back with a vengeance. Five months later, the two gas utilities demanded up to 237pc increase in natural gas rates to generate about Rs660 billion in additional funds in 2022-23.

To be precise, the Lahore-based SNGPL has sought an increase of Rs1,294 per million British thermal units (mmBtu) or 237pc while Karachi-based SSGCL has demanded an increase of Rs668 per unit or 96pc to meet their revenue requirements for 2022-23. On top of that, SNGPL has also sought another Rs1,016 per unit as cost of services for RLNG, including Rs762 per mmBtu on account of the differential impact of diversion of RLNG to the residential consumers at cheap rates in winters.

Both companies have claimed that the major reason for the higher revenue requirement was linked to the international price of crude oil and furnace oil in line with agreements signed by the government with gas producers. The regulator has already conducted public hearings on the subject and is yet to come up with its determination. There can be a delay but no escape.

The gas circular debt is already hovering higher than Rs1.5 trillion and needs to be settled. SNGPL alone has to clear almost Rs300bn by March 2023 to Pakistan State Oil (PSO) on account of LNG payables. PSO's total receivables including those from other entities, including the power sector, are now close to Rs650bn. The situation is such that PSO is pushing to take over SNGPL's share on prevailing subdued share prices in the stock market. Ironically, despite this unprecedented price in international oil and gas prices and the resultant increase in the import bill of two essential commodities, the two gas utilities have failed to control their unsustainable system losses against regulatory targets approved by the government.

Over the last three years (2019-22), both the gas utilities have not been able to achieve loss - commonly described as unaccounted for gas (UFG) reduction targets set by the Ogra and approved by the federal cabinet, according to a 3-year performance report released by the petroleum division.

Simply put, the two companies' UFG account for almost 600-650 million acre feet per day (mmcfd) that could easily produce more than 1,200MW of cheap electricity at Rs8-9 per unit and is more than half of the total LNG imports of about 800-900mmcfd and account for almost one-third of the total domestic gas production.