Gas Price Hike approved by PM to save public gas companies

Prime Minister Imran Khan has assented to increasing natural gas rates by an average of 46 percent as recommended by the Oil and Gas Regulatory Authority (Ogra) earlier.

The decision was finalized on Tuesday when top officials of the Petroleum Division, led by Minister Ghulam Sarwar Khan, explained to the PM why it was essential for the government to hike natural gas prices for both domestic (up to 186%) and commercial (up to 31%) users.

As per the reports of the meeting, the officials stated the hike was necessary to avoid the financial collapse of the two public sector Sui gas companies, namely the Sui Northern Gas Pipelines Limited (SNGP) and the Sui Southern Gas Company Limited (SSGC).

According to sources, SNGP was purchasing natural gas from about 40 gas producers at an average rate of Rs629 per MBTU (Million British Thermal Unit) and selling at Rs399 per unit, with a net loss of about Rs230 per unit.

It has also been reported that SNGP’s receivables stood at Rs165 billion as of Aug 20, 2018 compared to Rs171 billion payables. The receivables of SSGCL stood at Rs203.567bn against its payables of Rs148.786bn.

A lot of blame for the near financial meltdown of these public utility companies has been put on the outgoing government, as the former Prime Minister Nawaz Sharif had kept the prices unchanged for about four whole years, thereby worsening the financial position of the two gas giants.

Additional secretary-in-charge of the Petroleum Division Mian Asad Hayauddin informed the prime minister about the existing situation regarding the demand and supply in the oil and gas sectors, rationalization of gas sale prices and regarding recovery of the receivables.

As a result of the decision to raise gas prices, the primary parties to come out, as winners from this situation are the two gas companies - SSGC and SNGP - as it will reduce their cost differentials.

However, this proposal is likely to have some negative implication on some of the listed players on the stock exchange, as the gain for the two gas giants may come at the expense of some major companies. The sectors likely to face consequences of this major price hike are Fertilizers, Cement, Textiles and Steel players, according to analysts at Topline Securities.

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