During the first nine month of financial year 2020 Sui Southern Gas Company posted loss of PkR 19.1 billion. The main reasons for reporting loss after tax during the period were higher UFG disallowance, absorption of staggered losses and higher financial charges.
In line with OGRA Determination on Final Revenue Requirement (DFRR) for FY 2018-19 issued on May 25, 2021, total disallowances absorbed in these nine months fi¬nancial results amounted to PKR. 20.2 billion against PKR. 11.8 billion return on assets. However, in these unconsolidated condensed interim fi¬nancial statements, exceptional UFG disallowances made in DFRR for FY 2018-19 have not been followed which already have been re-claimed in the Motion for Review (MFR) Petition already ¬led. High UFG Disallowance The extremely high UFG disallowance is due to the fact that OGRA is not accepting UFG based on RLNG Volume Handling allowed to SSGC vide a Summary approved by the Economic Coordination Committee (ECC) dated May 11, 2018. Had this bene¬fit been allowed to SSGC the net UFG disallowance would have been reduced by PKR 9.5 billion.
A L S O || R E A D
ECC Approved Allocation Of Gas From Mitha And Bitro Fields To SSGC
All the stakeholders in RLNG supply chain are getting compensation for incidental cost / losses on actual basis in the process of RLNG Supply as per Price Mechanism approved by the ECC. Similar benefi¬t was allowed to SSGC through above referred ECC Summary in the form of Volume Handling benefi¬t in UFG determination. However, OGRA refused to implement the same causing huge fi¬nancial losses to SSGC in the form of UFG disallowance. Latest update on the matter is that OGRA has hired an external consultant to study the issue of impact of RLNG on Distribution UFG. Resolution of the above said issue is signi¬ficant even for future periods, in the absence of which further deterioration in the ¬financial position would continue that will cast serious doubt on the sustainable and efficient operations of the Company.
“Moving forward, reduction in UFG is the key to keeping the Company operationally and ¬financially viable. Further, it is critical that the Company be allowed to calculate UFG allowance based on RLNG handling on volumetric basis based on the decision of ECC of the Cabinet.” Says Chief Executive Officer Muhammad Imran Maniar
SSGC Pro¬fitability is derived from the Guaranteed Return Formula prescribed by OGRA. Under this formula, SSGC is allowed Guaranteed Return of 17.43 percent on its average net operating ¬fixed assets before fi¬nancial charges and taxes. However, OGRA makes adjustments while determining the revenue requirements based on efficiency related benchmarks viz-à-viz Unaccounted for Gas (UFG), Human Resource Benchmark Cost, Provision for Doubtful Debts and some other expenses. These adjustments affect the bottom line of the Company, which is primarily based on guaranteed return of 17.43% net of ¬financial charges and taxes.
Financial charges of PKR 5.36 billion which is mainly on Long Term Loan obtained to ¬finance Pipeline Infrastructure for transmission of RLNG from Karachi Port to Sawan for delivering RLNG to SNGPL network.
Absorption of Rs. 5.5 billion (March 31, 2019: Rs. 2.7 billion) of staggered losses pertains to Sindh High Court decision dated November 25, 2016 wherein the Sind High Court dismissed the Stay on UFG Benchmark and treatment of certain Non-Operating Incomes. As a consequence of this decision, SSGC had to absorb losses of Rs. 36.7 billion pertaining to FY 2011 to FY 2015. With the approval of competent authorities, SSGC staggered these losses over six years in maximum, however, it is intended to absorb these losses in 5 years i.e. by the end FY 2019-20 thus till March 31, 2020 SSGC has absorbed Rs. 34.9 billion.
