§ After much deliberation, OGRA notified the gas tariff for consumers which is effected from 01 Nov 2023.
§ To recall, the Economic Coordination Committee approved the much-awaited gas tariff hike on 23rd Oct. In its meeting on 30th Oct the Federal Cabinet sent the summary back to the ECC to review and reconsider. In comparison to the ECC approved summary, after making slight adjustment, the weighted average gas price is to go down by 1.5% to PKR 1,375/mmbtu as compared to PKR 1,397/mmbtu proposed initially by the ECC.
§ The changes in the gas prices that were notified today as compared to the ECC-approved pricing were made in 5 categories. The upward adjustments includes i) Process (Export), and ii) Captive (Export) by PKR 50/mmbtu and PKR 150/mmbtu, respectively. Whereas, a decline is in i) Process (Non-Export), ii) Captive (Non-Export), and iii) CNG by PKR 200/mmbtu, PKR 100/mmbtu, and PKR 800/mmtu, respectively. All other categories of gas prices remained the same as approved previously by the ECC.
§ Revenue impact: We have estimated the revenue impact and our working suggests that the revised gas price would create a positive GDS of about PKR 45.8bn in comparison to the existing gas price. However, it is pertinent to note, that GDS will plummet by 11.6bn against the gas prices proposed by ECC. As per the estimated revenue requirement of SSGC and SNGP, the total revenue requirement is PKR 697bn, while annual revenue would be PKR 743bn with the above tariff hike.
§ Monthly fixed charges: The OGRA also notified fixed monthly charges which increased from PKR 10/month to PKR 400/month for unprotected consumers, from PKR 460/month to PKR 1000/month and PKR2000/month (depending on the slabs). We estimate a total additional impact of PKR 84bn from this increase.
§ Estimated GDS and fixed charges: Cumulative increase from gas tariff and change in fixed meter charge would result in PKR 130bn as per our estimates. Moreover, in order to ensure the transfer of surplus revenues within gas distribution companies, cost of gas equalization mechanism would be devised with SNGP and SSGC and OGRA will consider inter-company adjustments while determining the revenue requirement of the gas utilities.
§ Surplus revenue to ease off RLNG circular debt: Also, it is important to mention that, the surplus revenue would be utilized to meet the tariff differential in RLNG diversion to the domestic sector. This would bode well for the PSO as the company receivables from SNGP increased by PKR 72bn and PKR 133bn in FY23 and FY22 respectively.
§ Sectoral Impact
§ Exploration and Production and Gas utilities – big positive for cash flow: The revision in consumer gas price is expected to further curb the mounting up of gas circular debt of E&P companies (which have been stuck vicious cycle of circular debt for a long time) and of domestic gas utilities (SNGP, SSGC). Back in Feb’23, the government increased gas prices which elicited a slowdown in overdue receivables of OGDC and PPL to PKR 511bn in Jun’23 (PKR 498bn in Mar’23) and PKR 456bn in Jun’23 (PKR 434bn in Mar’23), respectively. Albeit, 3-year average gas revenue of OGDC and PPL has a respective 41% and 62% contribution to the total revenue. Hence, a hike in gas prices will be positive for these companies, as it will not only improve the cash flow position, it will also potentially increase their payouts (due to improved cash earnings).
Courtesy – AHL Research