Stakeholders for ‘fixed rate of return’ gas pricing model

ISLAMABAD: Industry stakeholders argued on Friday that the current gas pricing model which guarantees a fixed rate of return on assets to Sui companies with 21 percent profit, and kills operational efficiency.

Oil and Gas Regulatory Authority (OGRA) on Friday held a public consultation on revision of Rate of Return (ROR) study conducted by KPMG for transmission and distribution companies operating under existing tariff regime for natural gas sector.

Currently, gas companies receive a market based rate of return under Weighted Average Cost of Capital (WACC) model which varies based on the market assumption and the value of the net regulated fixed assets in operations.

READ MORE: Market liberalisation: Ogra to revisit gas pricing formula

During fiscal year 2024-25, SNGPL and SSGC earned a return of 21 percent on their net regulated fixed asset base.

On indigenous gas sales this amounted to Rs36.7 billion for SNGPL and Rs19.9 billion for SSGC. On RLNG sales, a return of Rs7.3 billion an Rs6.6 billion was earned by SNGPL and SSGC during fiscal year 2024-25on RLNG net regulated asset base of Rs30.8 billion and Rs23.1 billion respectively.

UGDC head of finance said that they had operated the first gas company in the private sector among the natural monopolies of SNGPL and SSGC. He said that their gas system was smooth despite the monopoly of these gas utilities.

He further said that financial cost and even depreciation cost was included in operating cost of gas utilities. “Gas utilities are making profits from the consumers due to higher price and they are transferring these profits to shareholders,” he said adding that there is no need of guaranteed rate of return on assets in this situation.

Saeed said that they must exercise caution when using the power sector’s return formula as a benchmark for the gas sector due to fundamental differences in capital structure.

Unlike the gas utilities, he said many power sector companies have minimal commercial debt and operate with low leverage. Gas companies are currently ‘cash-strapped’ and heavily leveraged. Applying a formula designed for debt-free or low-debt entities to heavily indebted utilities may result in a return that fails to cover actual financial obligations, he added.

In the power sector, companies often rely on frequent asset revaluation to maintain returns under the ROC formula. We must scrutinize this practice before adopting it as a standard for the gas sector.

Managing Director SSGC Amin Rajpoot said that the profitability of the gas companies had jumped due to high interest rates during the last few years.

“If you look balance sheet of the gas utilities, they are operating with huge challenges,” he said, adding that these companies have laid 0.2 million kilometers of network and made huge investments due to the guaranteed rate of return formula.

He further said that the government had not increased gas prices for three years, which had increased circular debt.

“There should be a change in one segment rather than a sudden change in the entire regime of gas pricing formula,” he said.

Deputy Managing Director (DMD) SNGPL Faisal Iqbal said that a guaranteed rate of return was imposed on the gas utilities to maintain the normal gas tariff, added, guaranteed rate of return is given in a regulated regime to maintain a normal tariff.

Copyright Business Recorder, 2026