Oil and Gas Regulatory Authority (Ogra), on Monday, launched new tariff system for gas distribution companies and their rates of returns were revised up on the basis of market dynamics.
The new revised tariffs regime will see the fixed rate used to determine the rate of return on assets and profitability be changed with a weighted average cost of capital (WACC), reported media agencies.
Therefore the new rate of return calculated for the transmission assets would be 16.28 percent as against 11.83 percent, while it would be 17.43 percent compared with 12.7 percent for distribution.
The new tariffs regime also proposed tax not to be treated as a pass-through item as initially proposed.
The new tariff, using WACC method, would be applicable for the next three years (FY2019-FY2021). However, any variation of greater or less than two percent will be adjusted in the prevailing years’ revenue.
Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines (SNGPL) were previously preparing financials using fixed return on operating assets formula at 17 percent and 17.5 percent, respectively.
Analysts said that the new tariffs will be a sigh a relief for investors. Gas utilities can also counter growing debt financing costs under the new tariffs regime. Debt is set to form a major component of capital structure owing to an expected construction of re-gasified liquefied natural gas (RLNG III) project.
These projects are usually based on 70 percent debt and 30 percent equity. The country has two RLNG terminals with 1.2 billion cubic feet/day capacity. Assets will continue to be assessed at historic values under the new regime. No changes have been made on account of expenses incurred during operations.
Operating expenses exclude financial and debt servicing charges, taxes and dividend payments. However, late payment surcharge to gas suppliers will be treated as operating expenses.