SSGC, SNGPL Reject OGRA’s Decision to Cut LNG Losses

KARACHI: Sui Northern Gas Pipeline Limited (SNGPL) and Sui Southern Gas Company Ltd (SSGC) have rejected OGRA’s recent move to cut UFG allowances for LNG consumers.

OGRA reduced the UFG rate to 6.3% while notifying LNG prices for November 2020. Previously, SNGPL charged around 11%, and SSGC charged up to 17%. SNGPL currently reports 11% UFG, while SSGC has seen its UFG rise to 18%.

SSGC has operated without a regular managing director since 2016. This leadership gap has worsened the company’s performance. Its UFG-related losses now cost the national exchequer around Rs 25 billion due to theft and leakage.

This change has led to a legal conflict between the gas companies and OGRA over reduced UFG benchmarks. UFG reflects gas lost through system inefficiencies or theft during distribution.

On Friday, SNGPL stated that OGRA’s RLNG pricing notification violates the Petroleum Levy Ordinance 1961. It also contradicts the Cabinet’s policy, which allows actual UFG losses to be charged in RLNG pricing. SNGPL claimed OGRA made a unilateral decision by fixing the UFG at 6.3% for distribution consumers alone.

SNGPL pointed out that LNG had already been classified as a petroleum product. OGRA has been using a Cabinet-approved formula to determine RLNG prices for the past five years. The company insisted that OGRA must follow federal policy as directed by a Supreme Court decision, which declared such guidelines binding.

Currently, natural gas consumers face a combined UFG benchmark of about 7% for both transmission and distribution. No category-specific benchmarks exist. However, OGRA has now introduced separate benchmarks for RLNG: 0.38% for transmission and 6.3% for distribution.

SSGC raised its concerns in a notice to the Pakistan Stock Exchange (PSX) on Monday. The company urged OGRA to review the pricing model in line with legal requirements. It referred to the Economic Coordination Committee’s (ECC) decision dated 14 June 2016. That decision approved a ring-fenced cost model for RLNG, allowing companies to recover actual UFG losses.

SSGC noted that OGRA implemented the ECC’s decision in October 2016. Between FY 2014-15 and FY 2016-17, OGRA permitted actual UFG recovery and applied this method consistently. However, the new provisional prices for August to November 2020, issued on 11 November, deviated from this policy.

SSGC believes OGRA’s new benchmark violates both the Petroleum Levy Ordinance and the Cabinet’s RLNG pricing decisions. The company argued that OGRA must still follow federal policy, as required by law. The Supreme Court’s interpretation of Section 21 of the Ordinance confirmed that OGRA must act within those policy boundaries.

An SSGC official explained that natural gas consumers are charged under a consolidated UFG benchmark of around 7%. No separate limits apply to transmission and distribution. In contrast, OGRA has now set RLNG benchmarks at 0.12% for transmission and 6.3% for distribution. The company believes this change contradicts ECC and Cabinet decisions.

The official added that OGRA overstepped its authority. Under the Petroleum Levy Ordinance, only the federal government has the mandate to determine UFG allowances for RLNG. OGRA, by contrast, regulates natural gas pricing under its own ordinance.