SSGC Reports Significant Financial Losses Amid Regulatory Challenges

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Karachi: The Board of Directors of Sui Southern Gas Company (SSGC) has disclosed a considerable financial downturn in its latest report for the nine months ending March 31, 2023. The company registered a substantial loss after tax of Rs. 17.35 billion, a sharp decline compared to the previous year, primarily due to significant disallowances made by the Oil and Gas Regulatory Authority (OGRA).

According to information available from the Pakistan Stock Exchange (PSX), SSGC’s financial strain was largely influenced by adjustments imposed by OGRA, which bases its revenue calculations on a Guaranteed Return Formula. This formula allows for a return on the company’s net operating fixed assets, which was set at 16.60% for the period, down from 17.43% the previous year. Despite these figures, the company faced hefty penalties, particularly concerning unaccounted for gas (UFG), which significantly impacted its bottom line.

For the reviewed period, the company reported a pre-tax loss of Rs. 14.77 billion, escalating from a loss of Rs. 3.59 billion in the same period last year. This deterioration was exacerbated by a UFG disallowance of Rs. 25.44 billion, which overshadowed the return on assets of Rs. 11.95 billion. Additional financial burdens included a finance cost of Rs. 5.23 billion.

A critical issue affecting SSGC’s profitability is the high level of UFG, particularly in the Balochistan region, where UFG rates reached 60.1%, significantly higher than the previous year’s 52.2%. Despite efforts to reduce UFG across the board, the overall company-wide UFG was reported at 18.89%, which is a marginal improvement over the previous year’s 17.72%.

The financial challenges are compounded by the depreciation of the Pakistani Rupee against the US Dollar, which has inflated the Weighted Average Cost of Gas (WACOG) by 54% compared to the previous period. This depreciation led to an additional UFG disallowance of Rs. 8.93 billion.

In response to these challenges, SSGC has been actively pursuing regulatory changes, particularly concerning the handling of RLNG UFG, through engagements with OGRA and legal avenues such as the Islamabad High Court. The company hopes for a favorable outcome from a consultancy study commissioned by OGRA to assess the impact of UFG on its operations.

Looking forward, SSGC is implementing rigorous measures to mitigate UFG and improve operational efficiency. This includes establishing a dedicated UFG Hub Division, restructuring distribution operations in Lower Sindh, and intensifying actions against gas theft. The company remains optimistic about these initiatives contributing positively to future financial and operational performance.

In their acknowledgments, the board expressed gratitude towards shareholders, customers, employees, and regulatory bodies for their ongoing support and commitment to navigating these challenging times.