OGRA Reviews Gas Pricing, Eyes Shift from Asset Returns

The Oil and Gas Regulatory Authority (OGRA) has commenced a comprehensive review of the prevailing gas pricing and rate-of-return framework, indicating a prospective transition from the existing asset-based guaranteed returns model amid progressive liberalisation of the gas market.

As reported, OGRA has launched stakeholder consultations and fixed a public hearing for Friday to solicit detailed input on potential revisions to the pricing formula. The exercise draws on recommendations contained in an assessment report prepared by the independent consultancy firm KPMG, which was commissioned to evaluate the efficacy of the current regime.

Since 2018, OGRA has permitted the two state-owned gas utilities—Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC)—to earn a market-aligned return computed on the average net fixed assets deployed in operations during each financial year.

In its official statement, OGRA cited evolving sector dynamics—including persistent demand-supply mismatches, international price volatility, and global benchmarking standards—as the principal drivers necessitating a re-evaluation of the return-on-fixed-assets approach. The review is being conducted through an independent consultant under clearly delineated terms of reference, with an emphasis on procedural transparency and broad stakeholder engagement.

Having received KPMG’s initial draft report, OGRA has proceeded to initiate formal public consultation in compliance with statutory obligations. The objective is to determine whether the existing asset-linked return mechanism continues to be appropriate and sustainable within an increasingly liberalised gas market environment.

The gas utilities have expressed strong opposition to any discontinuation of the guaranteed asset-based return formula, advocating retention of the present pricing structure.

This review unfolds against the backdrop of ongoing expansion in the gas transmission and distribution infrastructure, which has contributed to elevated consumer tariffs and increased utility profitability notwithstanding constraints in gas supply volumes. Illustrative data reveals that SNGPL’s operating costs escalated from Rs66 billion in FY2020 to Rs94 billion in FY2024, while its earnings doubled from Rs19 billion to Rs38.9 billion over the same period despite reduced gas availability.