Ufg Study Final

KPMG Taseer Hadi & Co.
Chartered Accountants
Oil & Gas Regulatory

Authority
Un accounted for Gas – Study
Final Report – 07 July 2017

Private and Confidential
Risk Consulting | Karachi office

July 2017
KPMG Taseer Hadi & Co. Telephone + 92 (21) 3568 5847
Chartered Accountants
Fax + 92 (21) 3568 5095
Sheikh Sultan Trust Building No. 2
Internet www.kpmg.com.pk
Beaumont Road
Karachi, 75530
Our ref: KAS-SNH-690 It has been our privilege to have this opportunity to work with you and your
team, and we would like to express our gratitude for the co-operation and
Mr. Shahzad Iqbal,
courtesy extended to us by you, OGRA and teams of SSGC and SNGPL
Executive Director (Gas), during the course of the engagement.
Oil and Gas Regulatory Authority,
Plot No 54-B, Fazl-e-Haq Road,
Blue Area, Islamabad, Yours sincerely,
Pakistan.
7 July 2017
________________________________
Dear Sir,
Rana Nadeem Akhtar
Final – Unaccounted for Gas (UFG) study. Partner

With reference to the tasks specified in our scope of work as per contract Ref. OGRA
– 9(379)/201 dated 21 April 2016 (the Contract) to provide advisory services on
determining UFG levels, we are pleased to enclose four (4) copies of the final version
UFG Study.
Based on our contract, we compiled our 1st and 2nd draft report which was shared Encl.
with Oil and Gas Regulatory Authority (OGRA, the Authority) and accordingly the
Authority shared the draft report with the Sui Southern Gas Company Limited (SSGC) Final UFG Study
and Sui Northern Gas Pipeline Limited (SNGPL) to ensure factual accuracy of
information contained in the draft report followed by public awareness sessions and
feedbacks at large on the study. After discussions and analysis of the comments
received we have made appropriate changes to our study and have finalized the
document which is being submitted to you as final report.
© 2017 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
Structure of Report
The report comprises of the following 3 sections:
Report Sections Scope Elements
Section 1 – Background and Situational Assessment • Identify the bulk consumers in both gas companies with their respective volumes, inline
with the international practices.
This section provides a brief context of the UFG issue. We have
• International best practices adopted for treatment of theft by non registered consumers.
endeavored to evaluate the existing UFG related practices of Sui
• Preparation of methodology for treatment of theft volume in the UFG computation as
Companies and OGRA in the light of international better practices, as
well as what actions would be required by the companies to qualify for such volumes.
applicable in demographics and dynamics of Pakistan. We have
• Suggest appropriate way forward for quantification and treatment of Law & Order
assessed the UFG contributing factors1 to form basis of our
affected areas and define prerequisites to qualify for law and order volumes.
recommendations and proposed way forward as discussed in section 2
• Suggest whether there is a justification to consider allowance in UFG for volume against
and 3 of the report respectively.
minimum billing claimed by the gas companies.
• Devise a mechanism to stream line the Btu equivalence issue in case of third party
access and treatment of third party gas volume for calculation of UFG.
Section 2 – Our Recommendations • Suggest methodology for calculating UFG in the light of present practice, definition as per
rules and international practices applicable.
This section of the report highlights our recommendations in relation to
• Develop rationalized overall benchmark for UFG, in natural gas sector/ development of a
UFG control, calculation methodology and the UFG Allowance. Further,
formula to calculate UFG on yearly basis.
we have endeavored to highlight the impact that our recommendations
• Establish a formula to calculate the impact of volumetric shift in sales mix for calculation
will have on Sui Companies.
of UFG.
• Elaborate international best practices as well as appropriate discounts for local operating
conditions, with specific reference to countries with similar operating environment along
with details of company’s network / consumers in respective countries.
Section 3 – Way forward

We have proposed a roadmap with specimen Key Monitoring Indicators • Develop framework for incremental improvement in all areas/ components of UFG
(KMIs) to monitor the progress against UFG reduction plans and control.
achievement of those KMIs has been linked with the UFG Allowance. • A methodology / mechanism is to be devised for capping the volumes to be allowed (if
any).
____________________________________
1 UFG Contributing factors refers to theft, measurement errors, pipelines leakages, effect of change in
sales mix, minimum billing, gas losses law and order affected areas and other factors.
© 2017 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative ("KPMG International"), a Swiss entity. All rights reserved. 3
Document Classification: KPMG Confidential

Abbreviations and Acronyms
AFS Available for Sale MP&NR Ministry of Petroleum and Natural Resources
AGA American Gas Association
NGTR Natural Gas Tariff Rules
Authority Oil & Gas Regulatory Authority
NTSB National Transportation Safety Board
BCF Billion Cubic Feet
BTU British Thermal Unit OGRA Oil and Gas Regulatory Authority
CMS Consumer Meter Station PDA Price Determining Authority
CNG Compressed Natural Gas
PE Polyethene/ane/yne
CP Cathodic Protection
PGW Philadelphia Gas Works
CPS Cathodic Protection Stations
ECC Economic Coordination Committee PRS Pressure Reducing Station
ERGEG European Regulators’ Group for Electricity and Gas PUC Pennsylvania Utility Commission
EOI Expression of Interest
PUG Passing Unregistered Gas
ERR Estimated Revenue Requirement
RERR Revised Estimated Revenue Requirement
EVC Electronic Volume Corrector
FIR First Investigation Report RLNG Re-gasified Liquefied Natural Gas
FRR Final Revenue Requirement SMS Sales Meter Station
GCV Gross Calorific Value
SNGPL Sui Northern Gas Pipeline Limited
GoP Government of Pakistan
SSGC Sui Southern Gas Company Limited
GPA Gas Processing Association
GPRS General Packet Radio Service Sui Companies SSGC and SNGP
JMC Joint Meter Check TBS Town Border Station
KM Kilo Meter
TOR Terms of Reference
KMI Key Monitoring Indicators
YoY Year-on-Year
MMBTU Million British Thermal Unit
MMCF Million Cubic Feet 3PLE Triple Polyethylene

Content
Executive Summary 6
Preamble 13
Section I – Background and Situational Assessment 19
Background 20
UFG Definition, Calculation and Methodology 25
UFG Contributing factors 30
Impact Analysis of UFG 56
Conclusion to Situational Assessment 61
Section II – Our Recommendations 66
Section III – Way forward 77
Annexure 86
Executive Summary
Executive Summary – Working Towards a Better Solution
Background, History and Impact  All of these challenges are contributing factors to UFG. Further,
weak and delayed legal recourse system has also exacerbated
 Gas losses or Unaccounted for Gas (UFG) has been a long
UFG situation. Over the past decade the actual UFG has swelled
standing challenge for both the Sui Companies and the Oil
drastically. Gas losses are provided following in Fig. ES -1.
and Gas Regulatory Authority (OGRA, the Authority).
 The twofold mandate of Authority demands it to protect the SSGC | UFG Analysis
500
public interest by respecting their rights and secondly
requires it to enable a controlled and regulated environment
400
for the utilities. OGRA has to make sure that good consumers
are not penalized for menace created by illegal consumers 300
Volume | BCF
and that adequate UFG control mechanism is implemented 396 358 368
389 362 377
and appropriate UFG allowance is provided in the gas tariff. 200
317 337 359 359 381 358
 On the contrary, SSGC and SNGPL are coping up with several 100
technical/operating challenges and susceptibilities viz. 65 66
33 44 37 44 42
unfavorable operating conditions, expanding outreach 0 24 27 25 27 27
coupled with vulnerable supply management, demographical 04 05 06 07 08 09 10 11 12 13 14 15

challenges in terms of law and order discontents, low pace 800
SNGPL | UFG Analysis
technical advancement – vis-à-vis network expansion – in 700
terms of measuring capacities, theft identification and 600
controlling leakages etc.
500

Volume | BCF
Also, the Government with its socio-economic agenda 400
intends to provide utilities to every individual in Pakistan. In 574 577 598 600 588 582 597 553
506
536
this relation, Sui Companies are instructed time to time by 300
452
451
the local and federal governments to expand their outreach 200
where gas supply and its maintenance is not even 100
commercially viable. 40 40 49 52 53 63 83 78 85 76 71
0 33
04 05 06 07 08 09 10 11 12 13 14 15
Fig. ES – 1 UFG as part of Gas Available for Sale.
*The above UFG volumes are rounded to nearest BCF before any volumetric allowances by OGRA as
deemed sales. (i.e., Theft by non-consumer and law & order)

 OGRA being cognizant of the increasing gas losses,  To further comprehend this issue, UFG calculation formula
associated financial & operational risk and impact on equity applied by OGRA to calculate UFG needs to be understood.
for both the Sui Companies, initially devised a three year
incentive based schedule from year 2003-04 to reduce the
UFG Calculation
UFG to 6.00%. UFG allowed by OGRA against Actual UFG is
provided below:  In line with the international better practices, UFG is calculated
70 65 66 SSGC as the difference between the metered gas volume injected into
60
the transmission and distribution network – Point of Dispatch
(POD) – and the metered gas delivered to the end consumers at
50 44 42 Consumer Meter Station (CMS) during a financial year.
37 37
40
30
36 36
 This is expressed as a percentage of the metered quantity of
BCF
30
28 gas entering the network / Available for Sale (AFS). The formula
used to calculate UFG is:
20
10
𝐀−𝐂 −𝐁
𝐔𝐅𝐆 % =
- 𝐀 −𝐂
2011 2012 2013 2014 2015
100 Actual UFG Total Volume Allowed
83 85
SNGPL Where,
78
80 76
71 A = gas received by the company (gas purchased) during a
financial year;
55 55
60 B = volume of natural gas metered as having been delivered by
BCF
43 40 37 the licensee to its consumers (gas sold); and

40
C = metered natural gas used for self consumption.
20
 As discussed previously, gas losses are because of operational
-
& technical challenges faced by the Sui Companies. These
2011 2012 2013 2014 2015 challenges are termed as the contributing factors to UFG. Fig
Actual UFG Total Volume Allowed ES-2 briefly describes these factors.
*The above UFG volumes are rounded to nearest BCF before any volumetric allowances by OGRA as deemed sales. (i.e., Theft
by non-consumer and law & order)

 The existing measurement mechanisms at Sui Companies
Fig. ES-2 UFG Contributing Factors are not adequate enough to provide UFG details appropriately
at contributing factors level. Sui companies are unable to
1 Bulk to Retail Shift – Claim 2 Theft – 3 Law & Order – Claim of UFG determine the actual difference between the volume
Contributing
received and dispatched for a particular network segment.

Key UFG
of increase in UFG due to shift of Consumption of gas in volumes for areas where
Factors
gas supply from Bulk to Retail, an illicit / un-lawful prevailing law and order situation
which is more prone to theft and
technical losses over the period i.e.
manner either by
metered consumer or
hinders gas company operations
resulting in UFG.
 Accordingly, with the existing setup it is not possible to
change in sales mix non-consumers. identify actual gas losses associated with each contributing
factor in UFG.
4 Leakages – Natural 5 Minimum 6 Measurement 7 Other Factors –  Sui Companies currently exhibit break up of UFG into
gas leaked to the outside Billing – Difference Errors – Various other reasons
Contributing
contributing factors based on assumptions and estimates.

Other UFG
atmosphere from within a contributing towards UFG

Factors
of minimum billed and Mechanical faults

transmission/ distribution actual consumption resulting in slow which include BTU We have endeavored to provide a formula to calculate UFG
system and staying un- Equivalence, third party
accounted for.
volumes. meters and billing
access and increase in gas
on yearly basis, including technical and local conditions
errors.
prices. component, as per our scope of work under the contract of
the engagement and UFG definition given in NGTR, 2002 and
applicable law.
 A study conducted by US Department of Energy concluded
that: “You can not manage what you do not measure. If  In line with our scope of services, we have devised a
you do not measure it, you can not improve it”. methodology for capping the UFG allowances, considering
growth in natural gas sector, a balance between consumers
& the Sui Companies and to maintain reasonable pressure on
 Internationally, measurement based mechanisms are used to the Sui Companies to put due efforts to control these gas
regulate and control UFG as it is primarily associated with losses. This methodology includes introduction of framework
data and meter errors. The gas distribution companies with a model for incremental improvement in all
globally have a measured and managed approach to gauge areas/components of UFG control for the Sui Companies.
UFG with robust gas distribution networks where gas being
transported is fully measured end to end.

Proposed Way-Forward UFG Benchmark and Control Formula
 We have proposed a two component formula for calculating
Model for incremental improvement for UFG control
UFG Allowance viz. Technical Component and Local
 Interventions at strategic and operational levels of the Sui Conditions Component.
Companies are required for the resolution of UFG issue.  KPIs and KMIs have been devised in consultation with the
Failure to control gas losses stems from the absence of a
leadership of Sui Companies and the Authority to achieve
mindset that owns this problem and puts a cohesive and
improvement in the identified four areas of UFG Control
coordinated strategy to address the same.
framework:
 In this regard, UFG Control framework with an objective of − Network Measurement and Visibility;
“Enhanced UFG Control” is proposed. − Network Rehabilitation;
 This framework requires improvement in the following four − Theft Control; and
areas of the Sui Companies: − Research & Development
 All KPIs, together with their respective KMIs, are provided
− Network Measurement and Visibility;
with scores aggregating to a total of 100%. The incentive
− Network Rehabilitation; factor enables additional relief of 2.6% for contributing
factors representing local conditions, subject to the
− Theft Control; and achievement of KMIs.
− Research & Development.  Going forward, OGRA is suggested to monitor performance
of Sui companies and achievement of KPIs vis-à-vis agreed
 To better ensure implementation of the UFG control KMIs periodically, at least annually especially before approval
framework, the implementation is translated into a UFG of Final Revenue Requirement (FRR).
Benchmark formula used for calculating UFG Allowance  UFG control framework aims to bring year on year
which is explained under the below caption. improvement in UFG levels. Albeit specific funds and
resources will be required to achieve these KPIs and augment
controls over UFG but the benefits expected to be derived in
the form of reduced overall UFG levels will be exemplar.

UFG = Volume x ( Rate1 + Rate2 x β )
GAS Volume
UFG = X Technical + Local Challenging Performance
Allowance
Available for
Component Conditions Component
x Factor
Sale
Total UFG Volume of Gas Benchmark rate based on The study recognizes that Sui β (Beta) denotes the
Allowance in Available for Sale in international practices for Companies have to operate under cumulative efficiency
volume for a a year. technical losses usually challenging conditions as compared to score as determined by
financial year inherent to a gas supply the world at large. Accordingly, Local OGRA of Key Monitoring
network. Challenges allowance factor is Indicators (KMIs) based
suggested to cover impact of on a mutually-agreed
Finding comparable UFG control program for
expanding network and making it more
countries remained a a financial year.
prone to theft, leakages, supply to law
challenge, however, based
and order affected areas and The allowance for the
on nearest matches
data/meter errors. Accordingly we challenging conditions is
maximum allowance
have evaluated impact of law and made subject to ensuring
provided by regulators is 5%
order effected areas and theft. adequate UFG control
and we suggest the same to
be applied by the Authority Allowance for these challenging efforts are made by the
taking a moderate approach. conditions is suggested to be 2.6 % Sui Companies.
based on the past 5 years average
allowance for local operating
conditions.

 For prior years, the Authority may issue directives to close
the provisional FRRs as evaluating Sui Companies’
performance against the proposed KMIs for those periods
may not be practicable. FRR for FY 2017 may also be
evaluated based on prevailing criteria due to the above
mentioned reason.
 Further, to compute and evaluate ERRs in prospective years
the Rate 2 may be taken at 50% and the same may be
actualized in line with the achievement of proposed KMIs to
evaluate respective FRRs on submission.
 UFG allowance under all circumstances shall not exceed the
actual reported UFG.
 As mentioned our recommendations and advice shall not be
construed as legal opinion and in any circumstances and shall
not contradict or come in conflict with any court order or
authority of competent jurisdiction.
 This Executive Summary shall not, in any respect, be
considered as substitute of the report and shall be read in
conjunction with our detailed report.

Preamble
Preamble
Introduction To assist Oil and Gas Regulatory Authority for determining and
fixing the UFG benchmark(s) for the gas utility companies i.e..
 Oil and Gas Regulatory Authority (the Authority, OGRA), with
SNGPL and SSGCL for next five years and thereafter
an intention to carry out an independent study for
development of a formula to calculate UFG on yearly basis
determining UFG Benchmarks/ targets for natural gas sector
keeping in view all the relevant factors as well as international
in Pakistan invited proposals vide advertisements dated 26
best practices. Based on the “Request for Expression of
November 2015 titled “Selection of consultant firms for
Interest” for selection of consultant firms for determining UFG
determining UFG Level”.
level, the scope of the project covers the following:
 KPMG Taseer Hadi & Co. (KPMG, we, us, our) submitted the
proposal through letter reference KAS-SNH-395, dated 30 Task 1: Rationalized Overall UFG benchmark
December 2015 (our Proposal). After the due selection
process, the Authority appointed KPMG as consultant for  Develop rationalized overall benchmark for UFG, in natural
carrying out the Study for determining UFG level on the gas sector /development of a formula to calculate UFG on
Terms of Reference (TORs) agreed under the Contract for yearly basis, including fixed and variable parameters, as per
Service dated 21 April 2016 reference: OGRA – 9(379)/2015 relevant clauses of OGRA Ordinance and UFG definition
(the Contract). given in NGTR and applicable law.
 The key objectives of the proposed UFG study are to assist
OGRA in regulating the UFG related matters for the gas Task 2- International best practices
utility companies i.e. Sui Southern Gas Company limited
(SSGC) and Sui Northern Gas Pipelines Limited (SNGPL).  The benchmark study must elaborate international best
practices as well as appropriate discounts for local operating
conditions, with specific reference to countries with similar
Scope of Services operating environment along with details of company’s
network / consumers in respective countries. References on
Our scope of the work as per the Contract comprises of the UFG Benchmarks prepared by other renowned regulators
following tasks: should be included along with their methodology adopted to
calculate UFG disallowance, if any.

Preamble
Task 3: Factors Contributing UFG
Brief of some of the issues which are the contributing factors the best international practices with specific references
raised by the gas companies in the specific socio economic along with legal provisions vis-à-vis local conditions.
conditions and the required tasks identified by OGRA are as
follows:  Define prerequisites to qualify for law and order
volumes.
A. Shift of bulk sales to retail sales
D. Minimum billing
 Identify the bulk consumers in both gas companies with
their respective volumes, inline with the international  Whether there is a justification to consider allowance in
practices. UFG for volume against minimum billing claimed by the
gas companies, giving references, if any keeping in view
 To establish a formula to calculate the impact of shift in applicable legal provisions.
sales mix i.e. from bulk to retail sales for calculation of
UFG, inline with the international practices also indicate E. Formula for UFG calculation
reference countries.  To suggest methodology of calculating UFG in the light
B. Theft of present practice, definition as per rules and
international practices applicable.
 International best practices adopted for treatment of
theft by non registered consumers along with proper F. BTU equivalence issue in case of third party access
referencing vis-à-vis countries specific conditions.  To devise a mechanism to streamline the above
 Preparation of methodology for treatment of theft anomaly in line with the best international practices vis-
volume in the UFG computation as well as what actions à-vis local conditions.
would be required by the companies to qualify for such G. Treatment of third party gas volume for calculation of
volumes. UFG
C. Law and order affected areas  To suggest treatment of such gas volumes as per
 Suggest appropriate way forward for quantification and standard norm / best international practices.
treatment of such volumes as part of UFG in line with

Preamble
Our Approach
Task 4- Capping Volumes of allowable Our project approach as explained in our proposal is as follows:
 A methodology / mechanism is to be devised for capping the  Initiation of the project, identifying relevant stakeholders
Plan
volumes to be allowed (if any) as mentioned in Task 3 (A), Project and the impact of the UFG study.
Initiation
(B), (C), (D) above, with a view to create a balance between
consumers and the licensees and to maintain reasonable  Identification of controllable and non-controllable factors
contributing towards UFG
pressure on the licensees to put due efforts to control these Factors  Suggestions for appropriate responses to control the
losses. Contributing UFG identified factors contributing towards UFG
 Gathering of relevant international better practices
Assess
Task 5- Anticipated development in natural gas sector through KPMG global network firms and our International
International better Subject Matter Experts.
practices
 The benchmark must also cater for anticipated development
in natural gas sector, which may include increase in gas  Identification and anticipation of the increase or decrease
in Gas input / output, sales volume, load management
input due to indigenous gas discoveries, import of natural Anticipated and other such factors which may affect UFG
gas through interstate pipelines /LNG, increase / decrease in development in controllability in the future.
natural gas sector
gas sales volumes, load management, and other such  Identification of the basis / criteria for incremental
factors as per international best practices. improvement / reduction in UFG, through our experienced
Incremental International and local experts and our understanding
Execute
about local practices.
Improvement
Task 6- Incremental Improvement
 Development of a mechanism for capping allowable UFG
volume; in order to maintain a balance between
 Develop framework for incremental improvement in all Capping Volumes consumers and Gas utility companies.
areas/components of UFG control. of Allowable UFG
 A rationalized UFG study report, outlining international

Closeout
better practices, Incremental Improvement(reduction) in

Rationalized UFG UFG , Capping Volumes of UFG to be allowed and
Allowance anticipated developments in natural gas sector

Preamble
Work Done  Reviewed reduction plans developed by Sui Companies
and assessed the anticipated increase/decrease in Gas
In order to carry out our scope of work and in line with our work
volumes, sales volume, load management and other such
approach, we have performed the following steps:
factors which may affect UFG controllability in the future.
 Performed walkthroughs for the relevant activities relating
to UFG determination and quantification;
 Reviewed the financial position of the Sui Companies to
understand the impact of UFG disallowance at various
 Conducted meetings with the relevant key personnel at the levels.
Sui Companies to obtain understanding of the claims, major
impediments and challenges faced by the companies in  Visited company installations from TBS/DRS to CMS,
monitoring and controlling UFG (details provided in meter plants and measurement teams for practical
Annexure D – Key Persons Interviewed); experience of the on field gas supply mechanisms.
 Reviewed relevant information and documentation prepared  Accessed through our global network support, UFG
and submitted by Sui Companies as supporting evidences management practices and related regulatory approaches
and basis of our understanding of the business and to manage and control UFG levels in various international
operational model of the Sui Companies along with the jurisdictions.
regulatory and policy documents (details provided in  Accompanied the SSGC theft control teams to observe
Annexure E – Key information/documents reviewed); procedure followed to detect theft by non-consumers.
 We regularly discussed and shared the progress and issues  Developed a rationalized UFG calculation formula and
related to the engagement with focal persons and project proposed a structured UFG management & control
committee at OGRA. The Authority was also updated using strategy for the Sui Companies.
structured presentations at regular intervals.
Standard Terms and Conditions and Terms of
 We also attended OGRA hearing in Karachi on SSGC
Contract
petitions to augment our understanding on the subject and
gather views of industry representatives.  This engagement is governed by the Contract and terms
 Subject matter experts were deployed and assessment was contained in it and our Standard Terms and Conditions as
performed to determine the underlying causes of UFG and outlined in our Proposal.
difficulties faced in their quantification and net impact on  In case there is an overlap between any provision of the
UFG disallowances. Contract and our Standard Terms and Conditions, provision
of the Contract shall prevail.

Preamble
Duration of engagement Notice to the Reader
 This engagement was carried out from 22 April 2016 to 15  Reader to the report should take into account the
August 2016 and the data and information relevant for this limitations and notices mentioned at the end of the report.
study has been gathered during that period. We have not  Also, the terminologies used in the report have specific
sought to update the data or information after that date. meaning and accordingly are defined under the heading
 The data used for the analysis generally pertain to the ‘Specific terminologies used’ at the end of the report.
period beginning 1 July 2010 and ending 30 Jun 2015,
except as specified otherwise.
Use & Circulation of report

 This document has been prepared specifically to determine
the UFG allowance for the gas utility companies to help the
Authority regulate the UFG issue. Accordingly, this report
should not be used for any other purpose.
 This document is confidential and for the internal use of its
intended users. Therefore, circulation of this document
should be restricted and should not to be distributed to any
person other than those mentioned above. This report
should not be referred to or quoted, in whole or in part,
without our prior written consent except as specifically
provided in terms and conditions of the Contract.

Section I –
Background and Situational Assessment
Background
Background
Introduction  One of the critical elements of price revision petitions is
 In Pakistan, OGRA is the prime regulatory authority vested the allowance for UFG. It represents the value of normal
with the responsibility to regulate Natural Gas Sector in portion out of the total UFG accepted by the authority to be
Pakistan. OGRA regulates the two natural gas transmission included in the gas price.
and distribution companies, SSGC in the south and SNGPL  The term UFG is used in various forms by gas utility
in the north. companies across the world in rate proceedings, filings,
 Key regulatory activities performed by OGRA are managing reviews, and related documents.
licensing for transmission and distribution of natural gas,  Internationally, UFG generally refers to gas in a
advising the Federal Government on fixing the gas prices transmission and / or distribution system which the utility
for consumers and regulating related matters. company cannot account for as usage or through
 Gas is a public utility and accordingly its price is regulated appropriate adjustments. Adjustments are usually made for
based on the principle of cost reimbursement. Utility factors as variations in temperature, pressure, meter-
companies submit their tariff petitions to OGRA stating reading cycles, or heat content; calculable losses from
Revenue Requirements (Revenue required to meet the construction, purging, line breaks, etc., where specific data
Costs to provide gas to the consumers) and claim for Rate is available to allow reasonable calculation or estimate; or
Base (return on assets employed ) as guaranteed in the other similar factors.
licensing agreement with OGRA.
Historical Perspective of UFG Allowance
 On gas pricing OGRA is guided by Natural Gas Tariff Rules,
2002 ( NGTR ) issued under the OGRA Ordinance, 2002.  General underlying factors causing UFG have been pipeline
Based on NGTR and tariff petitions submitted by utility leakages, measurement problems and theft. All these need
companies, OGRA evaluates and decides the petitions by focused management and control but these may, to a
allowing the costs to supply gas and the guaranteed return. limited extent, be taken as un-controllable also.
As a result upward or downward revisions are recorded to  Un-controllability or inherent susceptibility of gas supply
gas sale prices and are communicated to Federal network to leakages and theft form the basis for UFG
Government for notification. values to be allowed as a normal loss and included to the
gas price. If disallowed, the loss will be borne by the utility
company.

Background
 UFG allowance beyond normal and un-controllable values  In FY 2010, Sui Companies requested the Authority to
will result in unjustified price increase to be borne by relax the then allowable UFG level associating the
consumers and authority needs to remain cognizant of increasing UFG levels to network expansion. OGRA
such a situation. On the other hand if the gas companies appointed consultants to review and advice the allowable
are not allowed normal un-controllable UFG values these UFG levels for the Sui Companies. The study from the
would fail to meet revenue requirements and may fail to consultants could not be concluded and the Authority
survive in the long run. However, identifying and decided to continue with allowable UFG rate at 4.5%.
controlling UFG that is beyond normal and un-controllable  Considering 4.5% allowable UFG as unjust, gas companies
values remains the responsibility of gas companies. approached respective High Courts for a stay on the above
 In Pakistan, prior to establishment of OGRA in 2002, Price stance of the Authority.
Determining Authority (PDA) as a practice fully allowed the  The High Courts granted stay orders and directed the
claimed UFG values to be included in the gas price. At that Authority to apply a provisional UFG rate of 7% to the price
time UFG levels were determined by gas companies revisions petitions filed by the gas companies. However,
around 7-8% of the total gas available for sale. for SNGPL the stay order was withdrawn for FY 2013 and
onward petitions which were decided by the Authority
 In the year 2002, OGRA in its first determination of gas
using UFG allowance rate of 4.5%. For SSGC the stay
price accepted the then UFG level which was also around
order of Sind High Court has also lapsed during the year
8%. However, gas companies were required by OGRA to
putting SSGC also to SNGPL’s position.
reduce UFG level to 6%, or less, in the next three years.
This target was again revised in 2005 and OGRA required  Beside approaching courts of law gas companies also
the gas companies to further reduce UFG level to 4% by approached the Government and presented their plea for
2012. providing policy guidelines as per the mandate of Federal
Government under section 21 of OGRA Ordinance 2002.
 UFG has been increasing from around 7% in FY 2002, 8% As a result, the Economic Coordination Committee of the
in FY 2008, 10% in FY 2011 and up to 15% in FY 2015 Cabinet (ECC) provided policy guidelines against case
owing to various reasons and has now become a critical reference No. ECC-154/25/2014 dated 20-11-2014 of
survival factor for the gas companies. Ministry of Petroleum and Natural Resources (MP&NR, the
Ministry) (Refer Annexure K- ECC decision) advising OGRA
to provisionally allow under following heads representing

Background
SSGC – UFG Profile BCF
UFG volumes as deemed gas sales for the purposes of 2012 2013 2014 2015 2016
revenue requirements: Gas Available For Sale 406 418 423 434 468
a. Volume pilfered by non-consumers, detected and Total UFG Volume Actual 44 42 65 66 71
determined by the companies in accordance with Total UFG %age 10.8% 10.0% 15.4% 15.2% 15.2%
OGRA Procedure as provided in rule 30 of Natural Gas UFG Allowance @ 4.5%* 18.3 18.8 19.0 19.5 21.1
Licensing Rules 2002;
UFG Allowance for:
b. Volumes consumed in law & order affected areas; and - Theft by non-consumers
- Law & order affected 2.0 6.6 6.8 6.9 6.9
c. Impact of change in Sales mix on UFG, using the base Total Volume Allowed 20.3 25.4 25.8 26.4 28.0
year 2003-04. Effective Allowance %age 4.9% 6.1% 6.1% 6.1% 6.0%
**The above UFG volumes are rounded to nearest BCF.
 ECC also required that UFG Study, as required under *Amended vide FRR 2016 - Sindh High Court Judgment dated 25
Nov 2016.
Source: SSGC FRR [ FY 2012 – FY 2016]
clause 21.1 of Licensing Conditions applicable to the gas
companies, should be completed as soon as possible. As
per the ECC guidelines above, the authority was expected SNGPL – UFG Profile BCF
to provisionally allow UFG volumes till the said UFG Study
is completed. 2012 2013 2014 2015 2016
Gas Available For Sale 675 638 582 522 506
 Following the ECC guidelines OGRA partially allowed for a.
Total UFG Volume Actual 78 85 76 71 60
and b. above but did not consider the impact of c. while
Total UFG %age 11.6% 13.3% 13.1% 13.6% 11.8%
deciding the price revision petitions for the years 2013,
2014 and 2015. This partial allowance was in addition to UFG Allowance @ 4.5%*
the 7% UFG allowance as per the stay order of the High 30.4 28.7 26.2 23.5 22.8
Court for SSGC and 4.5% for SNGPL. The following table UFG Allowance for:
- Theft by non-consumers
illustrates the volume of activity and related UFG - Law & order affected 8.7 14.2 14.0 13.5 13.3
allowance by OGRA in the past 5 years: Total Volume Allowed 39.1 42.9 40.2 37.0 36.1
A snap-shot of scale of activity and developments of Sui Effective Allowance %age 5.8% 6.7% 6.9% 7.1% 7.1%
Companies is provided on the following page. **The above UFG volumes are rounded to nearest BCF.
*Amended vide FRR 2013 – Para 8.6 Prior Period Adjustment Source: SNGPL FRR [ FY 2012 – FY 2016]

Snapshot of SSGC and SNGPL
SSGC 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Gas Connections
Domestic 1,713,153 1,766,839 1,837,495 1,920,098 2,045,957 2,127,593 2,219,138 2,338,853 2,460,494 2,546,619 2,618,806 2,683,024
Commercial 18,152 19,055 19,938 20,971 22,558 23,606 24,156 24,998 24,494 24,119 23,740 23,408
Industrial 2,638 2,795 2,978 3,184 3,561 3,801 3,863 4,042 4,129 4,119 4,156 4,153
Total Connections 1,733,943 1,788,689 1,860,411 1,944,253 2,072,076 2,155,000 2,247,157 2,367,893 2,489,117 2,574,857 2,646,702 2,710,585
Network Size (KMs)

Transmission Network 2,980 2,943 3,062 3,290 3,309 3,320 3,320 3,337 3,401 3,490 3,551 3,551
Distribution Network 24,339 25,752 27,542 29,830 31,930 34,282 36,785 39,253 40,905 42,360 43,090 43,890
Total Network Size 27,319 28,695 30,604 33,120 35,239 37,602 40,105 42,590 44,306 45,850 46,641 47,441
Gas Available for Sale (MMCF) 341,033 364,689 384,356 385,846 408,484 422,387 439,341 395,779 405,737 418,396 422,735 433,798
Gas Sales (MMCF) 318,068 337,638 353,869 351,994 377,372 384,522 388,828 360,012 364,409 373,645 353,904 362,510
SNGPL 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Gas Connections
Domestic 2,263,875 2,437,541 2,641,273 2,869,208 3,101,303 3,358,439 3,611,187 3,836,091 4,151,518 4,394,281 4,670,962 4,908,461
Commercial 38,842 41,358 43,919 45,925 49,176 52,242 54,631 55,877 55,906 56,212 53,957 47,913
Industrial 2,881 3,271 3,773 4,425 5,443 5,953 6,375 6,606 6,628 6,561 6,455 4,649
Total Connections 2,305,598 2,482,170 2,688,965 2,919,558 3,155,922 3,416,634 3,672,193 3,898,574 4,214,052 4,457,054 4,731,374 4,961,023
Network Size (KMs)

Transmission Network 5,763 6,121 6,195 6,625 7,016 7,347 7,585 7,613 7,654 7,654 7,733 7,796
Distribution Network 38,258 42,192 46,964 52,394 59,951 67,449 75,653 81,828 87,796 93,646 95,855 97,300
Total Network Size 44,021 48,313 53,159 59,019 66,967 74,796 83,238 89,441 95,450 101,300 103,588 105,096
Gas Available for Sale (MMCF) 484,678 575,913 613,968 625,199 650,052 652,987 650,291 665,235 674,868 638,076 581,961 521,533
Gas Sales (MMCF) 451,959 536,382 573,387 576,628 598,361 585,316 587,163 581,901 597,283 552,621 506,423 450,843

UFG Definition, Calculation and
Methodology
UFG Definition
Unaccounted for Gas “the difference between the total gas available from all
sources, and the total gas accounted for as sales, net of
 UFG in a fiscal year is the difference between gas available
interchange, and company use. This difference includes
for sale and actual sales.
leakage or other actual losses, discrepancies due to meter
 According to NGTR, rule 2(m) “UFG means, in respect of a inaccuracies, variations of temperature and/or pressure,
financial year, the difference between the total volume of and other variants, particularly due to measurements being
metered gas received by a licensee during that financial made at different times. In cycle billings, an amount of gas
year and the volume of natural gas metered as having been supply used but not billed as of the end of a period.”
delivered by the licensee to its consumers excluding
 Further, the Pennsylvanian Public Utility Commission has
therefrom metered natural gas used for self-consumption
recommended the following UFG calculation methodology;
by the licensee for the purposes of its regulated activity;
𝐆𝐚𝐬 𝐫𝐞𝐜𝐢𝐞𝐯𝐞𝐝 − 𝐆𝐚𝐬 𝐝𝐞𝐥𝐢𝐯𝐞𝐫𝐞𝐝 − 𝐀𝐝𝐣𝐮𝐬𝐭𝐦𝐞𝐧𝐭𝐬
and such other quantity as may be allowed by the 𝐔𝐅𝐆 % =
Authority for use by the licensee in the operation and 𝐆𝐚𝐬 𝐫𝐞𝐜𝐞𝐢𝐯𝐞𝐝
maintenance of its regulated activity.”  In addition to above, in Germany the UFG is calculated as
 General underlying factors causing UFG have been pipeline the difference between the measured gas supplied in the
leakages, measurement problems and theft. All these need grid and the gas billed to consumers, thus leaving the grid
focused management and control but these may, to a paid.
limited extent, be taken as un-controllable.  In accordance with the Reconciliation Code of the New
 UFG is technically linked to nature and size of the gas Zealand Gas Industry of 1 July 2000, UFG means the Long-
supply network and the quality of gas itself. Aging pipes term difference between the metered quantities of gas
are prone to leakages if not maintained, weak or faulty entering a transport system at a Receipt Point and the
measurement equipment hamper accounting for the metered quantities of gas leaving the transport system at a
supplied gas and supply to densely populated or remote Delivery Point, expressed as a percentage of the metered
areas in domestic sector are susceptible to theft. quantities of gas entering the transport system at the
Receipt point.
UFG defined in International jurisdictions
UFG calculation
 We referred to the American Gas Association that defined
UFG as:  Based on the above definition and our understanding of
nomenclatures used at Sui Companies, UFG is the

UFG Calculation
difference between the metered gas volume injected into the operation and maintenance of its regulated activity.
the transmission and distribution network – Point of i.e..
Dispatch (POD) – and the metered gas delivered to the end 𝑮𝒂𝒔 𝐚𝐯𝐚𝐢𝐥𝐚𝐛𝐥𝐞 𝐟𝐨𝐫 𝐬𝐚𝐥𝐞 = 𝐆𝐚𝐬 𝐏𝐮𝐫𝐜𝐡𝐚𝐬𝐞𝐝 – 𝐈𝐧𝐭𝐞𝐫𝐧𝐚𝐥 𝐂𝐨𝐧𝐬𝐮𝐦𝐩𝐭𝐢𝐨𝐧
consumers – Consumer Meter Station (CMS) – during a
financial year. Gas sold is the metered quantity of gas delivered to the
Mathematically; customer and gas volumes allowed by the Authority to be
treated as deemed sales. Currently, OGRA allows volumes
UFG = Gas received at POD – Gas delivered to CMS, against law & order affected area, pilfered volumes and
adjusted for self consumptions and other adjustments gas shrinkage.
allowed by the Authority.
SNGPL has contested the UFG calculation methodology
Transmission Distribution based on the arguments that the existing formula for UFG
calculation is not in accordance with the UFG definition
SMS TBS/DRS CMS
stated in NGTR, 2002.
POD
Point of Dispatch Sales Meter Station Town Border Station Consumer Meter Station
District Reporting Station  We were provided with Annexure F – Revision of Method
 UFG is expressed as a percentage of the metered quantity for Calculating UFG vide letter reference SGMD:113, dated
of gas entering the network/ Available for Sale (AFS) and 15 June 2016 where SNGPL has suggested the following
the formula used to calculate is: formula (the proposed formula) for UFG calculation.
𝐀−𝐁 −𝐂
𝐔𝐅𝐆 % =
𝐆𝐚𝐬 𝐀𝐯𝐚𝐢𝐥𝐚𝐛𝐥𝐞 𝐟𝐨𝐫 𝐒𝐚𝐥𝐞 – 𝐆𝐚𝐬 𝐬𝐨𝐥𝐝 𝐀
𝐔𝐅𝐆 % =  Where, A is the gas received by the company (gas
𝐆𝐚𝐬 𝐀𝐯𝐚𝐢𝐥𝐚𝐛𝐥𝐞 𝐟𝐨𝐫 𝐒𝐚𝐥𝐞
purchased) during a financial year and B is the volume of
Where; natural gas metered as having been delivered by the
Gas available for sale is the total gas purchased during the licensee to its consumers (gas sold), and C is the metered
year less the metered natural gas used for self natural gas used for self consumption.
consumption by the licensee for the purpose of its  The difference between current formula and the proposed
regulated activity and such other quantity as may be formula is of denominator. SNGPL has proposed to use
allowed by the Authority for use by the Sui Companies in Gas Purchased as denominator for calculating UFG

UFG Methodology
Percentage instead of using ‘Gas available for Sale’. Example working based on SNGPL FRR 2014-15
 Using the existing UFG calculation methodology, the
percentage of UFG at SNGPL for the Year 2014-15 is UFG through existing formula used by OGRA
10.97% and by using the formula suggested by SNGPL,
UFG for the said year will be 10.88%.
Gas available for sale — Gas Sold
 This reflects a decrease of 0.09% in the UFG percentage UFG = x 100
as a result of the change in the UFG calculation formula. Gas available for sale
Accounting Treatment for UFG 521,533 — 464,304

UFG = x 100
 Organizations involved in manufacturing and / or 521,533
distribution activities suffer various types of losses during
the production and or distribution processes. Some of
these losses are inherent to the product / processes and UFG = 10.97%
are unavoidable, other types of losses might otherwise be
avoided through various measures. As per the generally
accepted accounting and costing principles these can be
categorized into the following:
UFG through SNGPL's recommended formula
- normal loss; and ( Gas purchases — Gas sold ) —
- abnormal loss. UFG = Adjustments x 100
 The inherent loss expected or anticipated prior to Gas purchases
production in the processing operations is defined as a
normal process loss. It is thus termed as a standard loss
and accepted as unavoidable. Weight losses, shrinkage, UFG = ( 525,891 — 464,304 ) — 4,358
evaporation, rusting etc. are the examples of normal loss. 525,891
Normal loss is absorbed in the cost and thus increases the
cost of production of the useable or saleable units of
product manufactured or distributed. UFG = 10.88%
*The above workings are based on Gas Sales reported in FRR after volumetric allowances as deemed sales.

UFG Methodology
 Abnormal process losses are caused by unexpected or  As per applicable accounting principles, the gas companies
abnormal conditions such as accidents, machine should only be granted allowance for UFG contributing
breakdowns, use of substandard material etc. as per factors that are unavoidable as these form a part of the
generally accepted accounting principles abnormal loss is normal business activities and cannot be eliminated. The
the loss which occurs over and above normal loss. remainder should be disallowed and borne by gas
Therefore, abnormal loss is also called an avoidable loss. company as a consequence of failure or inability to control
 These losses are segregated from process costs and the factors rendering gas to be un-accounted for.
investigated to prevent their occurrence in future.
Abnormal loss is not absorbed in the cost of product
manufactured or distributed.
 With regards to Sui Companies transmission activity is
relatively loss free and almost all the UFG related losses
relate to distribution activity.
 As stated earlier, underlying factors causing UFG related
losses have been pipeline leakages, measurement
problems and theft. All these need focused management
and control but these may, to a limited extent, be taken as
un-controllable also. Un-controllability or inherent
susceptibility of gas supply network to leakages and theft
form the base for UFG values to be allowed as a normal
loss and included to the gas price.
 However, to what extent such losses are normal is the key
to determining the benchmark UFG level. This can only be
achieved if the entire supply throughout the distribution
network is well measured enabling the gas companies to
pin point losses geographically, further, quantify these
losses into various contributing factors.

UFG Contributing Factors
UFG Contributing Factors
For the purpose of our study and in line with our scope of work we have endeavored to evaluate and analyze UFG contributing factors
relating to Sui Companies in the context of current situation. We have attempted to understand and present the link between
contributing factors and their impact on UFG levels. Following are the major contributing factors of gas lost and UFG.
We have presented the components which are globally accepted as UFG contributing factors along with their significance in UFG
levels.
Theft
Theft of natural gas means use / consumption 1
of gas in an unauthorized / un-lawful manner for
which the user / consumer has neither been
7
billed nor he has paid for such consumption. UFG Shift of Bulk Sales to Retail
C o n t rib u t in g Claim of increase in UFG due to shift of gas
supply from Bulk to Retail ratio over the period.
2
Law & Order Affected Areas
Claim of UFG volumes for areas in which
F a c t o rs
6 Others
prevailing law and order situation hinders gas Various other reasons contributing towards
company operations resulting in UFG. UFG which include, but are not limited to:
3 - BTU Equivalence
Minimum Billing - Third party access
5 - Increase in gas prices
Difference of minimum billed and actual consumption
volumes included in UFG claimed by the companies.
4
Measurement Errors
Leakages Mechanical faults resulting in slow
Natural gas leaked to the outside atmosphere meters and billing errors, billing cycle
from within a transmission/ distribution system
and staying un-accounted for.
In the following pages, we have discussed these contributing factors and their impact on Sui Companies.

Contributing Factor 1 – Theft (Cont.)
Gas Theft These individuals / organizations do not exist on Sui Companies
billing records and are therefore difficult to identify and
 Theft of natural gas is any unlawful / unauthorized use or
approach.
consumption for which the consumer / user has neither
been billed nor such consumption is paid for.
Theft – Causes and Concerns of Sui Companies
 In Pakistan, Natural gas theft has been a problem for Sui
companies and is perceived to be forming a major portion Continuous growth of distribution network
of annual gas losses / UFG. Gas theft can be classified into  Distribution of gas in retail sector to densely populated or
two broad categories as follows: remotely located areas is prone to theft. Underground gas
infrastructure and the fact that gas is the cheapest
a. Gas theft by Registered Consumers; and
domestic fuel make it more vulnerable to theft.
b. Gas theft by Non-Consumers
 Gas supply to domestic consumers by laying pipelines had
 Theft by registered consumers is the unauthorized use of remained on government’s socio-economic agenda forcing
gas by consumers having registered connections of the Sui the gas companies to supply gas in retail sector where
Companies. Theft by consumers generally occur due to theft is more likely and difficult to detect. Continuous
meter tempering or by meter by-pass. While tempering expansion resulted in shift of consumer mix towards retail
with meters, leakages above and under ground may also and theft also increased adding to UFG volumes.
occur. Situation in gas producing areas
 In such cases, the consumer is identified. Accordingly,  People living in gas producing areas, especially in
theft volumes are estimated and charged to the consumer Balochistan have held the premise that they own the gas
based on past consumption patterns. extracted from their land and are not supposed to pay for
it. Accordingly, residents do not prefer metering and get
 Gas theft by non-consumers is pilferage of gas by parties illegal connections wherever possible and do not pay when
not registered on the company’s network. In such cases billed.
mostly underground pipes are tempered with, to draw
connections for pilferage of gas. Identification and
quantification of theft is difficult and prone to estimation
errors.

Countrywide moratorium  Concerns have been raised by Sui Companies regarding
 Countrywide moratorium on new gas connections was certain clauses defined in the document. Sui Companies,
enforced since FY 2011 because of decreasing availability of accordingly filed an application in July 2013 for the review of
natural gas. Sui Companies had the concern that in certain the procedure for dealing with theft of gas cases requesting
areas people are willing to obtain legal connections and when the Authority to allow them claiming recoveries of theft for
refused they attempt to use illegal means to consume gas the actual period of the crime and to amend the maximum
perceived as the cheapest available fuel. time period fixed for booking recovery of theft cases which
is maximum one year.
Non availability of any law in the past  The premise of the request was based on the fact that many
 Due to the absence of any anti gas theft legislation before FY a times recovery claims stay pending in courts of law for
2011, controlling gas theft was difficult. Sui Companies were longer periods and there are no special courts for gas theft.
not able to take legal actions against gas pilferers which
encouraged gas pilferers and multiplied incidents of gas theft.  OGRA decided the review request in July 2014 against the
However, increasing UFG levels show that this concern even Sui companies request to extend the time period beyond
addressed has not made any positive impact. one year. Refer Annexure I for details.
 Sui Companies still claim that the refusal of the Authority to
allow them from claiming recoveries of theft for the actual
OGRA Procedure for Dealing with Theft of Gas Cases period of the crime contributes a significant proportion to the
 OGRA formulated procedures in 2005 for dealing with gas annual UFG losses suffered/ faced by them. Industrial
theft cases, Refer Annexure H for details. consumers are regularly monitored and modern technologies
 This document provides guidelines for Sui Companies to deal like EVCs are installed at majority of industrial CMSs.
with theft cases including: Detection of Theft
– Instances/ acts that amount to theft;  For detection of theft by consumers Sui Companies
– Various sources of information used to locate gas theft usually react to information received through
and its documentation; internal/external sources which include phone calls or
– Basis of suspicion of theft; surveillance and monitoring by company officials.
– Course of action to be followed on theft detection;
 Another proactive method applied is based on a monthly
– Assessment of value of gas stolen; and
data analysis of consumer consumption pattern using a
– Procedure for recovery of gas

software tool that provides list of consumers where are conducted. On detection, illegal connections are
consumption has varied beyond a certain percentage (e.g. removed and attempts are made to quantify the theft
5%) of normal average consumption. The list is then volume. Refer Annexure I for details.
reviewed for any seasonal variation and effect of pressure
profiling activities in certain areas. Based on this analysis, Estimation of Theft volume
the suspected consumers are visited for further evidence  In cases relating to theft by registered consumers,
collection. estimation of theft volume is based on historical
 As a result of visits the following possibilities occur: consumption pattern of the consumers. As per OGRA
– Meter is identified to be malfunctioning or tempered; procedures only volume equal to gas consumed in
previous one year can be charged to the consumer and
– Leakage is identified;
billed as claim. However, in case of theft by direct by-pass
– Extra connection bypassing the meter is noted; the period shall not exceed three (3) years subject to
– Nothing evidenced to confirm the suspicion, means a provision of concrete physical/ documentary evidence .
false alarm.  For non-consumer theft, procedures that are generally
 Accordingly, meters are then sent to meter workshop for applied include the following:
diagnosis and impact analysis. – Check meters are installed at the location for a pre-
 In case of leakage, respective departments are notified for defined period to measure gas consumption of the
rectification. area and based on its readings, consumption of the
 Similarly, in cases where meter is found tempered with or area is estimated.
an indication of meter by-pass is found, the consumer is – The impact of seasonal variation in the consumption
served with a notice and accordingly procedures specified pattern is also incorporated into the estimation.
by OGRA are followed to estimate and charge the theft – Calculation of gas theft volume where theft setups
volume to consumers. have been removed, is based on estimating the gas
 In cases of theft by non-consumers information received flow from the hole made for the illegal connection and
through internal/external sources which include phone calls the pressure in the line. Beyond that estimation is also
or observations by surveillance and monitoring teams dependent on judgment of the gas company staff for
indicate towards possibility of theft. In such cases, raids by the period of pilferage, area and no of houses /
specialized teams supported by law enforcement agencies facilities to which gas was supplied etc.

 Defined approaches as supported by OGRA procedures Treatment by OGRA for theft cases
may appear appropriate in theory. In practice whether
 Sui Companies contend that when theft is detected and its
these are sufficiently and efficiently applied to enable Sui
volume is estimated, the volume becomes accounted for
Companies to detect most of the gas theft cases, remains
and thus shall not become part of UFG.
a question to be answered. The following tables highlight
the detection of theft by gas companies:  In case where theft by registered consumers is detected,
OGRA procedures are followed for calculating the volume
Table TT – 1 Theft by Consumers - detected pilfered and claims are billed to consumers. Any
SSGC * SNGPL photographic or other evidence is documented for future
No. of Cases Volume (MMCF) No. of Cases Volume (MMCF) reference.
2011 332 133 14,919 4,042
 However, if recoveries are not made within one year of
2012 581 177 21,188 8,312
713
billing the claim, cumulative volume related to such cases
2013 142 26,602 7,196
2014 905 270 29,520 10,712 is added back to UFG volume.
2015 1,502 439 39,173 3,028  In case of theft by non-consumers, claim-files are prepared
Source: SSGC & SNGPL Reported Information under OGRA procedures. Notices are sent to parties
______________ identified and FIRs are lodged for recovery of claims.
* The information provided by SSGC represents Surveillance & Monitoring (S&M) department only i.e..
(Industrial and Commercial consumers)  A considerable number of such consumers approach
various courts of law and file for stay orders.
Table TT – 2 Theft by Non-Consumer Claimed Consequently, recovery process becomes time-consuming
SSGC SNGPL and surpass the one year time for recovery as set by
OGRA.
Volume Claimed MMCF  Sui Companies argue that for the reason narrated above,
2011 - 6,607 companies’ efforts against theft control are not
2012 2,059 11,172 acknowledged. And therefore, contest that theft should
2013 6,387 10,136 not be linked with recoveries.
2014 8,772 7,406
2015 10,420 8,735
Source: SSGC & SNGPL Reported Information

 ECC considering socio-economic conditions and  However, the rationale behind theft volume allowable of
complexity of the UFG issue, has given policy guidelines to the claimed volumes and mechanism to verify these claims
OGRA under section No. 21 of OGRA Ordinance, 2002 in is not clear.
the case No. ECC-154/25/2014 dated 20 November 2014  Also, the judgment and subjectivity involved in estimation
of Ministry of P&NR. ECC has advised OGRA to of pilfered volume in each case raises concerns on the
provisionally allow Sui Companies claims against Gas accuracy of such claims.
Volume pilfered by non-consumers. ECC further reminded
 Sui Companies argue that due to weak legal recourse
OGRA to have the UFG study completed as soon as
available, political influence exercised as a culture and
possible.
possibility of collusion by company staff. Therefore, it
 OGRA while giving Determination of Final Revenue becomes extremely difficult to recover amounts against
Requirement of Sui Companies for the years 2013, 2014 & pilfered volumes from non-consumers in the ordinary
2015 has allowed 80% of actual established volume course of business and thus, OGRA should exclude these
against non consumers. The gas volumes claimed and their claims from UFG calculations.
respective allowance by OGRA in the respective years is
 However, if this is done on a continuous basis it becomes
provided below:
a window for shifting the burden caused due to theft by
non-consumers to good consumers. It may be construed
Table TT – 3 Analysis of Theft Volumes allowed and disallowed
as relieving Sui Companies from their responsibility of
SSGC SNGPL controlling the UFG.
Claimed Allowed Difference Claimed Allowed Difference
Volumes in MMCF
2011 - - - 6,607 6,607 -
2012 2,059 1,218 841 11,172 5,586 5,586
2013 6,387 5,110 1,277 10,136 8,109 2,027
2014 8,772 5,110 3,662 7,406 5,925 1,481
2015 10,420 5,110 5,310 8,735 5,925 2,810

Table TT 4 – SNGPL Consumer Wise Analysis of Theft volume and Recoveries
No. of Cases Volumes Booked (MMCF) Volumes Recovered (MMCF)
Total %age Cases /

Dom. & Dom. & Sp. Dom. & Sp. Consumers
Ind. & Com. Ind. & Com. Total Ind. & Com. Total Recovered Consumers
Sp. Dom Dom. Dom
2011 8,071 6,848 3,578 464 4,042 2,919 304 3,223 80% 0.38%
3,898,574
2012 7,316 13,872 7,641 671 8,312 6,335 327 6,662 80% 0.50%
4,214,052
2013 8,521 18,081 6,367 829 7,196 5,108 415 5,523 77% 0.60%
4,457,055
2014 6,601 22,919 9,065 1,647 10,712 3,161 914 4,075 38% 0.62%
4,731,374
2015 5,506 33,667 1,597 1,431 3,028 999 1,080 2,079 69% 4,961,023 0.79%
Source: SNGPL Reported Information
 The table provides the volumes booked and recoveries made in respect of all different consumer categories of SNGPL for the
past five (5) years.
 In the last five years there is a decline of 9% in the total number of cases detected for industrial/commercial, however, this
category accounts for the major portion of volumes booked i.e. around 85% of total booked volumes during the period
beginning FY 2011 – FY 2014.
 Additionally, in FY 2015 industrial and commercial theft volumes decreased by 82% while increase in efforts toward domestic
and special domestic category resulted in an increase of 47% in the number of cases detected. However, the volume booked in
the respective category decreased.
 Further, the number of cases identified, compared to the total consumer base has remained less than 1% in the last five (5)
years. This may highlight deficiency in theft detection, monitoring and control. Whereas, theft as a whole contributes a
significant portion of annual UFG of the Sui Companies.

Contributing Factor 2 – Law and Order Affected Areas
UFG in Law & Order Affected Areas  However, OGRA permitted 75% of the claimed volume as
 The premise for the captioned factor is the hindrance in deemed sales for UFG computation purposes and advised Sui
gas supply operations and recovery of gas bills in the areas Companies to claim the balance form Federal Government. Later,
where law and order situation is abnormal. It may be due Federal Government advised back to OGRA to follow ECC
to a military operation against terrorism, political unrest or guidelines and fully allow such claims as there is no mechanism
any tribal resentment to pay bills claiming ownership of gas with them to allow such subsidy. Claimed volumes and allowances
being produced from those areas under this factor for the last 5 years are provided below:
Table LO – 1 Analysis of Theft Volumes allowed and disallowed
 Gas companies have claimed for certain areas that due to SSGC SNGPL
Claimed Allowed Claimed Allowed (MMCF)
adverse law and order situation, employees cannot go and 2011 - - 2,136 2,136
perform controlling activities and therefore, UFG volumes 2012 1,286 813 3,377 2,136
are very high in those areas. 2013 1,950 1,463 8,124 6,093
2014 2,279 1,709 10,803 8,102
 In FY 2011, SNGPL was allowed for volume adjustment 2015 2,355 1,766 10,048 7,536
against their claim for gas supplied through 13 SMSs in Source: SSGC & SNGPL Reported Information
Nowshera and Gurguri districts of KPK. This allowance is  We understand and acknowledge the issue of “law and order
continuing to date where claims based on gas supplied to affected areas” faced by Sui Companies and its impact on the
these areas are accepted by OGRA. existing UFG levels. The same was acknowledged by the Chief
 SSGC has also made claims on the above grounds for Minister of KPK vide its letter to the Authority dated 19 December
Sariab region in Quetta, same were allowed by OGRA 2013 (Refer Annexure R – KPK Letter). However, Government of
since 2012. Volumes for the claims are calculated through KPK vide letter No. CPO / E&P / TOG / OGRA / 16-17 to OGRA has
meter readings of gas supplied through Sales Meter informed that Law and order situation is improving since 2013 in
Stations (SMS) and any billed volume is deducted KPK, foreign nationals are residing in camps in Karak and Kohat
therefrom. and Foreign investors are also showing interest. Sui Companies,
on the contrary still claim that law and order is linked with
Unbilled Volume = A  B
recoveries; and not with the actual law and order situation of the
Where; A is gas supplied from SMS and B is gas billed to the
areas itself, residents of gas producing areas consider themselves
customers in the affected area
as owners of the natural gas and refuse to pay for gas
 ECC of the Cabinet advised OGRA to provisionally allow consumption.
Sui Companies for such claims till the UFG study is
completed.

Contributing Factor 3 – Minimum Bil ing
Minimum billing Impact of Minimum billing on UFG
 The Authority has notified minimum consumption charges  Minimum billed domestic customer is assumed to have
for the natural gas consumers, vide Consumer Price consumed a volume of 40M3, though consumption
Notification under section 8 of OGRA Ordinance, 2002 and recorded is as per its metered reading. This may be less
Rule18(3) of NGTR 2002. A minimum consumption of than 40M3 due to actual consumption being less by the
40M3 per month per domestic consumer is set by the consumer or due to any measurement error of the meter.
Authority i.e. consumers having gas consumption of less
 In cases where consumer actually consumes more than
than 40M3 will be subject minimum charges which may be
40M3 and the installed meter measures it below 40M3 as
notified from time to time.
a result of meter being Sticky/ PUG, any difference
 The current applicable minimum consumption charges for between the volume billed (40M3) and actual volume
domestic customers is based on 40M3 vide OGRA’s metered (meter reading) is not absorbed in the volume of
notification dated 1 September 2015 are: gas sold and becomes the part of UFG.
Amounts in PKR per month  Therefore, customers may become subject to minimum
Domestic Sector billing due to either of the following reasons:
Stand alone Meters. 148.50  The consumer has in actual consumed less than the
Mosques, Churches, Temples, Madrasas
notified minimum consumption(40M3); or
and other religious places. 148.50  The metering errors (slow, PUG, sticky, etc.) have
Government and semi- Government resulted in less volumes being metered than the
offices, Hospitals, Clinic, Maternity consumer’s actual consumption which may be higher
Universities, Colleges, Schools and private or less than the notified minimum consumption
Educational Institutions, Orphanages and (40M3)
other charitable Institutions along- with 810.00
Hostels and Residential colonies to whom _____________
gas is supplied through bulk meters The minimum consumption of 40M3 per month is substantiated through
including captive power. various studies carried out by Sui Companies, the Authority and University of
Engineering and Technology Lahore concludes that the average gas
Refer Annexure L - Gas Price Notification consumption for 4 hours a day by a common domestic consumer is 40M 3.
For details refer Annexure M – Minimum Consumption

Contributing Factor 3 – Minimum Bil ing (Cont.)
Table MB – 1 Customers Subject to Minimum Billing Table MB – 2 Minimum Billing Claims
SSGC SNGPL SSGC SNGPL
Number of Customers MMCF
2013 692,966 1,070,079 2011 - 6,883

2014 718,941 1,200,886 2012 3,987 7,541
2015 761,104 1,651,585 2013 4,705 7,663
Source: SSGC & SNGPL Reported Information 2014 8,238
5,365
 No segregation was made available as to what extent 2015 5,916 9,327
these minimum billed consumers represent the actual less Source: SSGC & SNGPL Reported Information
than 40M3 consumption and between consumers who
were billed at minimum owing to measurement errors.  Further, in its determination of FRR of SSGC for FY 2011
 As in cases of malfunctioned meters the difference the Authority promulgated that “the amount claimed by Sui
between meter reading and minimum volume may not Companies against minimum billing includes even those
reflect the actual gas supplied and hence that may remain cases where meters are not registered for gas supply”.
un-accounted for. Quantifying such volumes at company
level is only possible where malfunctioned meters are fully
identified which is not the case.
Claim of Minimum billing

 Sui Companies claim that minimum billing due to metering
errors is an uncontrollable factor and such volume should
be included in the gas sold considering it as a deemed
sales for UFG calculation purposes. Following table shows
claims over the past 5 years:

Contributing Factor 4 – Leakages
Pipeline leakages  Following tables illustrate the increase in the proportion of
aged pipelines in the distribution network of Sui
 Internationally, leakage is defined as “the action of
Companies, (Based on the Information received from Sui Companies)
unmeasured gas passing from within a transmission/
distribution system to the outside atmosphere” Table L – 1a Distribution Network Ageing
SSGC
 The volume of gas lost as a result of pipeline leakage is Below 10 20 Years &
generally correlated with the size of leaks and the pressure KMs 10 to 20 Years Total
Years above
of gas passing through the pipeline. (i.e.., larger the size of 2011 16,303 13,383 8,918 38,604
the leak or higher the pressure, greater the volume of gas 2012 17,231 12,927 9,973 40,132
lost.) 2013 18,126 11,830 11,601 41,557
2014 18,729 11,083 13,277 43,088
Causes of Pipeline leakage 2015 18,103 10,378 15,406 43,887
Source: SSGC Reported Information
 The factors instigating the increase in pipeline leakages at
Table L – 1b Distribution Network Ageing
Sui Companies, generally include: SNGPL
1. Size and age of network KMs
Below 10
10 to 20 Years
20 Years &
Total
Years above
2. Corrosion
2011 49,003 32,825 - 81,828
3. Third party damage 2012 53,703 34,093 - 87,796
2013 57,832 35,814 - 93,646
1. Size and age of network 2014 57,571 19,909 18,375 95,855
 Size and age of network is a prominent factor contributing 2015 55,015 20,503 21,782 97,300
towards the increase in pipeline leakages for Sui
Companies, as aged pipelines are considerably more  This clearly demonstrates insufficient network
susceptible to leakages. This is due to their extended rehabilitation by Sui Companies which has consequently
exposure to adverse environmental conditions, earth increased the pipelines aged 20 years & above.
movement, heavy rains and flood, temperature, high  During the course of our discussion with the management
winds, excavation by the operator, fire or explosion of Sui Companies it was argued that they were compelled
external to the pipeline, accidents and rupture of previously to expand their network size and consumer base, on the
damaged pipe and terrorist attack etc. premise of Government’s socio-economic agenda.

Contributing Factor 4 – Leakages (Cont.)
 This has made, difficult for Sui Companies to control  The following is composition of Sui Companies’
pipeline leakages through adequate network rehabilitation distribution network in terms of Steel and PE:
with the existing capacity limitations. However, as the Table L – 3 Composition of Distribution Network
maintenance and network rehabilitation is the SSGC SNGPL
responsibility of Sui Companies, network rehabilitation 2015 KMs
carried out by SSGC and SNGPL for their distribution Steel 37,118 69,945
network of 43,890 Km and 97,300 Km, respectively, is as P.E 6,772 27,355
follows: Total 43,890 97,300
Table L – 2 Rehabilitation of Mains & Services
SSGC SNGPL  The extent of corrosion depends upon the following
KMs
2011 483 99
factors:
2012 176 102 I. Pipeline Wall Thickness;
2013 219 115 II. Pipeline Coating;
2014 196 128
2015 170 231 III. Pipeline Ageing;
Source: SSGC & SNGPL Reported Information IV. Material Grade; and
 The table above indicates the extent of rehabilitation V. Depth of Cover.
carried out by Sui Companies which is not sufficient. For
e.g. in FY 2015, SSGC and SNGPL network rehabilitation
was of only 0.22% and 0.24% of their total distribution I. Pipeline Wall thickness
networks, respectively.  Corrosion occurs independent of wall thickness, but thinner
the pipeline wall, the sooner the pipeline deteriorates.
2. Corrosion  Whereas, thicker pipelines takes longer before causing an
 Corrosion is a natural process, which results in pipeline incident. Therefore, Sui Companies need to consider the
deterioration, caused due to the exposure of metal to thickness of its pipeline as per the applicable standards to
environment. Distribution network of Sui Companies is protect their network from being corroded.
substantially covered with steel pipes which are naturally
exposed to corrosion.

 For SNGPL pipeline wall thickness of its distribution  It is noted that 97% of SSGC’s network consists of Grade
network ranges from 0.113 to 0.312 inches. Whereas B material.
SSGC’s distribution network (steel) in terms of its wall  Whereas, SNGPL distribution network is of API-5l standard
thickness is as follows: and grade-B material for steel pipes, for PE pipelines the
Table L – 4 SSGC - Wall Thickness (Steel) company uses 'ASTM D-2513' Standard and 'Medium
Density Pipe' up to 4" diameter and 'High Density Pipe' is
Above
Inches 0.113 0.133 0.154 0.188 0.188 0.219 0.25
0.25
Total used for 6" diameter.
KMs 4421 3,208 1913 794 478 603 278 228 11,923
IV. Depth of Cover
Source: SSGC Reported Information  The depth of pipeline cover is considered as an important
line of defense for pipeline against external interference.
II. Pipeline Coating
 Pipeline coating is an alternative tool for protection of  For SNGPL, the pipeline cover of its distribution network
pipelines, it can be metallic or nonmetallic, with either of ranges from 3.5 to 5 feet. Where as for SSGC, the
these, the objective is to isolate the underlying pipelines distribution network in terms of its pipeline cover is as
from the corrosive environment. follows:
Table L – 5 SSGC Pipeline Cover
 Majority of the Sui Companies’ distribution network is
coated with Coal Tar, Asphalt and 3PLE, tape coating and Detail 3.5 feet 4 feet 4.5 feet 5 feet > 5 feet Total
others. KMs 6,000 3,000 2,500 1,500 2,550 15,550
III. Pipeline Ageing Source: SSGC Reported Information
 Aged pipelines are more susceptible to corrosion due to
their additional exposure to adverse environmental Corrosion control
conditions over the time.  As an initiative to reduce pipeline corrosion, Sui Companies
have taken the following initiatives:
IV. Material Grade a. Established Cathodic Protection (CP) stations across
 The material grade of pipeline has an inherent corrosive the distribution network.
behavior that can range from high to low corrosion
b. Introduced PE pipelines in the distribution network to
resistance, however, it is more dependent upon the
reduce its exposure to corrosion.
environment it is exposed.

a. Cathodic Protection Table L – 6 Composition of Distribution Network
SSGC SNGPL
 Cathodic protection (CP) is an effective tool used to control 2015 KMs Percentage KMs Percentage
pipeline corrosion through CP stations across the network, Steel 37,118 85% 69,945 72%
by passing electric current through it. This protects the P.E 6,772 15% 27,355 28%
Total 43,890 100% 97,300 100%
pipeline from corrosion and other environmental affects. Source: SSGC & SNGPL Reported Information
 At present, SSGC claims that 93% and 45% of its supply
 It is argued that PE pipes are safer and economical than
mains and distribution mains are protected through CP
pipes made of steel. However, as per National
stations respectively.
Transportation Safety Board (NTSB) report, the number of
 Where as, in case of SNGPL 92% and 66% of its supply plastic pipeline accidents investigated that cracked in a
mains and distribution mains are protected through CP brittle-like manner, resulting from premature failure is
stations respectively. considerably high.
 However, the CP activities of Sui Companies are subject to
interruptions due to frequent power outage on buried 3. Third Party damage
steels.  Third party contractors working nearby natural gas network
often cause damages to the Sui Companies pipeline
Effect of Power Outage on Buried Steel pipes
network, resulting in gas losses.
 Cathodic protection is carried out using electric current,
however the repeated power outage has adversely  This can range from damage to the external pipeline
affected the CP process, as during the power outage coating causing accelerated pipeline leakages, to the
interval, CP level of the network drops, making it exposed extent of pipeline ruptures.
to corrosion and leakages. Table L – 7 Number of Third Party Damages
b. Use of PE Pipeline SSGC SNGPL
Number of instances
 During FY 2015, the total distribution network of SSGC and 2012 1,892 877
SNGPL consists of 15% and 28% of PE pipeline 2013 3,013 100
respectively. Although this shows an increasing trend 2014 3,153 13
towards PE pipeline, efforts are still required to reduce the 2015 3,076 19
network exposure to corrosion. 2016 2,697 3,342

 Table L–7 provides the number of third party damages to Underground Leakages
the network of Sui Companies. Although, Sui Companies  Underground pipelines form a substantial portion of the
have established procedures for inspection of third party total distribution network. Ageing of underground pipeline
damages to the network, necessary efforts are required to is an important factor affecting the network being prone to
control the same. leakages owing to the factors discussed earlier.
 Normally, gas leakage is at a fairly constant rate and will
The Impact of Leakages
increase gradually with time if not identified and repaired.
 Based on the factors discussed earlier, leakages can be Gas lost due to underground leakages is deceptive and at
divided into the following two categories: times can be very difficult to detect.
1. Overhead Leakages  Based on the results of surveys carried out by Sui
2. Underground Leakages Companies, the average leakage rate per kilometer for
underground pipelines of SSGC and SNGPL is 4.9 and 2.2
Overhead Leakages leaks/Km, respectively. Refer Annexure N - Leaks per KM.
 Overhead leakages are mainly contributed by the domestic The difference among the leakage rates of both Sui
consumers, as the above ground pipelines are commonly Companies, is due to the size of network coverage during
exposed to the external environment. the surveys conducted. SSGC’s leakage rate is based on a
 International better practices suggest that leakage volume survey of only 16,150 KMs out of 43,890 KMs of total
can be determined through leakage factor taking into distribution network. Whereas, in case of SNGPL the
account the elements causing leakages. leakage rate of 2.2 leaks/ Km is based on the survey of
 Based on a study carried out by SNGPL, average leakage 80,370 KMs out of 97,300 KMs of its total distribution
rate of a single leak in a domestic connection is 0.95cft/hr. network.
and an estimated loss due to aboveground leakages is  However, considering international better practices, we
estimated to be around 15-20% of the total gas loss. noted that in Germany the average number of leaks per
 An average domestic connection comprises of at least 9 KM is 0.215. Whereas, in Massachusetts (USA) the
joints (potential leakage points). This creates a possibility of average leaks/KM is 0.36 Leaks/KM.
1.8 leaks per domestic connection. (9 x 20%)

Contributing Factor 5 – Measurement Errors
Overview
 We understand that these parameters are, therefore,
 A study conducted by US Department of Energy concluded
required to be measured and incorporated into the
that: “You can’t manage what you don’t measure. If
metering calculations to reflect correct natural gas supply
you don’t measure it, you can't improve it”. Any weakness
and consumption.
in measurement mechanisms is bound to aggravate the
UFG problem.  Table ME – 1 shows that transmission network is fully
metered and there is negligible UFG in transmission,
 Measurement mechanism for natural gas is dependent on
however, the distribution network is not fully metered.
sufficient and accurate measurement infrastructure. If all
key points of dispatch from source of natural gas to  Internationally gas supply networks are precisely metered
consumer are not metered, reconciling flow of gas across to allow visibility of gas supply across the network
the network to identify and monitor losses in supply will including the fluctuations and unusual consumer behavior
not be possible. Accordingly, gas company will neither be at geographical or consumer class level.
able to relate and quantify losses to specific factors  Unless gas companies have sufficient and accurate
causing the losses to happen nor will be in a position to measurement of gas supply across the network UFG
take focused control measures. This is apparently the case cannot be controlled.
for continuously increasing UFG in distribution networks of  Currently, in the absence of measurement segments at
both the utility companies. Table ME - 1 on next page municipalities/metropolis and sub-town level, gas supply at
highlights the existing measurement capacity of both the a single SMSs may not reconcile due to
gas companies. We understand unless this is improved interconnected/looped network.
UFG cannot be controlled.
 In terms of accuracy, measurement of natural gas has a
scientific relation to its temperature and pressure at any
given point of time. Additionally, compressibility and quality
(heating capacity) is also important to be measured
accurately. Refer Annexure O – Measurement Errors for
details.

Contributing Factor 5 – Measurement Errors (Cont.)
Supplier Transmission Distribution
Check Meter POD SMS TBS/DRS CMS

Measures the gas inflow Measures the gas flow Reduces the Gas pressure Allows the companies to
into the transmission with metering devices and allows company to account for natural gas
network with metering and reduce the natural track natural gas as it flows delivered to their
devices. Gas Pressure. along the pipeline. customers
Table ME - 1 SNGPL SSGC SNGPL SSGC SNGPL SSGC SNGPL SSGC
Total 38 29 383 123 4,058 2,442 4,961,023

2,280,999
Metered 38 29 383 123 472 625 3,611,119* 1,519,895*
Percentage 100% 100% 100% 100% 12% 26% 73% 67%
*Net of minimum billed meters assumed to be sticky/PUG for the purposes of this analysis. Source: SNGPL & SSGC Reported Information

Network Segmentation Table ME - 2 SNGPL
Percentage of
Region No. of TBSs/DRSs (As of 29 Jul 16) Network
 Network segmentation bifurcates gas supply networks on Looped
pressure and demographic basis to end consumers. As per Isolated Looped Total Percentage
the current state, Sui Companies gas supply network have a Abbottabad 48 20 68 29%
Bahawalpur 221 22 243 9%
weak network segmentation at distribution level which are Faisalabad 387 360 747 48%
as follows: Gujranwala 26 372 398 93%
Gujrat 180 24 204 12%
 Table ME – 2 shows that around 45% of SNGPL’s Islamabad/Rawalpindi 94 376 470 80%
network is currently looped with the highest percentage Lahore 129 341 470 73%
in Islamabad / Rawalpindi, Lahore, and Gujranwala. As Multan 393 169 562 30%
Peshawar 251 104 355 29%
multiple TBSs/DRSs are still unmetered and not Sahiwal 125 1 126 1%
segmented, the extent of measurement error can not Sargodha 189 32 221 14%
be determined along with other contributing factors of Sheikhupura 169 25 194 13%
UFG. Non segmentation therefore, creates a barrier for 2,212 1,846 4,058 45%
reconciliation of UFG losses.
Table ME – 3 SSGC
 Table ME – 3 shows that SSGC’s network is currently Percentage of
Region No. of TBSs/DRSs (As of 29 Jul 16)
looped with the highest percentage in South Region i.e.. Network Looped
45%. Further, all three sub regions need to be isolated Isolated Looped Total Percentage
on priority basis to minimize and trace UFG level in Central 74 58 132 44%
Eastern 67 32 99 32%
South Region.
Western 54 72 126 57%
Total South 195 162 357 45%
 As per our understanding, government initiatives for gas Hyderabad 852 21 873 2%
supply and lack of strategic planning by Sui Companies Nawabshah 505 4 509 1%
have caused gas network to change into a spaghetti Sukkur 169 7 176 4%
Larkana 445 10 455 2%
network. Quetta 53 19 72 26%
Total North 2,024 61 2,085 3%
2,219 223 2,442 9%

Metering Errors at Sui Companies  Defective meters can be broadly categorized into the
following:
 Measurement errors at Sui Companies can be classified
into two categories:  Passing Unregistered Gas (PUG) Meters are meters
1. Use of obsolete/incorrect equipment; and defected in such a way that gas passing through meter
2. Use of defective measuring equipment without being measured resulting in lower volumes of
natural gas being billed to the customer than actually
 Both of the above factors result in unmetered gas passing consumed.
through the system causing unbilled quantity being used  Slow Meters are meters that become slow when meter
by the consumers. Consequently, there is an increment in dial is un-calibrated or is damaged, due to which meter
UFG level of Sui Companies. dial moves at an increased or decreased RPM and
becomes unable to provide an accurate meter reading
 Use of obsolete equipment may result in meters resulting in an increase in the UFG levels.
becoming slow or PUG. Standard technical specifications
for equipment and material issued by the Authority in 2009 Table ME – 4 Defective Meters
are applicable and all measurement equipment are SSGC SNGPL
required to be procured and installed in accordance with Slow/ Slow/
these specifications. Year PUG Total PUG Total
Fast Fast
However, there are other factors that impair meters and 2011 19,156 44,723 63,879 7,698 2,344 10,042
equipment which include accidental damage, intentional 2012 2,988 112,342 115,330 13,778 3,388 17,166
tampering of the meter and/or regulators installed at the
customer premises or varying characteristics of the gas 2013 2,130 100,887 103,017 13,987 4,111 18,098
beyond the defined parameters in the installed meter 2014 1,980 115,946 117,926 16,172 3,765 19,937
resulting in unmetered gas passing through the system
2015 2,467 94,574 97,041 23,141 3,367 26,508
(PUG meters).

 The table ME – 4 presents breakup of the total number of As per international better practices, meters installed by utility
slow and PUG meters (meters ‘Passing Unregistered Gas’) companies for measurement of gas volume, has a defined
of the SSGC and SNGPL respectively. policy for meter replacement that have gone beyond their
 In addition to above it also needs to be considered that the useful life to avoid inaccurate meter readings. We were given
figures reflect the faulty meters that were identified and to understand that there is no such documented policy available
replaced in the said period; defective meters not identified at SSGC. However, following table shows the meter
have not been reflected in the statistics presented above replacement policy for SNGPL that we can apply to analyze
and may also be a major cause of the rising UFG levels SSGC situation also.
being faced by the companies. Replacement Period
S. No. Meter Type
 This can also be linked to the fact that around 1.3 million (SNGPL)
and 0.7 million consumers are billed at minimum by 1 Industrial 1 year
SNGPL and SSGC respectively. As discussed in the 2 Commercial and Special Domestic 7 years
respective section, major reason behind minimum billing is 3 Domestic 16 years
defective meters.
 26% of the total meters that pertains commercial sector
Meters Ageing have been in operation for 7-10 years which is in excess of
Table ME – 5 and 6 shows the meter installed on Sui the defined exemplary replacement period .
Companies network
 Out of a total of 4,164 industrial meters installed, only 8%
Table ME – 5 SSGC - Meter Ageing
(319 meters) are less than a year old. The remaining 92%
SSGC
exceed the optimal replacement time period. This fact must
Age (Years) Industrial Commercial Domestic Total Percentage
be considered that industrial sector consume large volume
Less than 1 319 2,312 189,542 192,173 6.9%
of natural gas and without proper metering it can have a
1 to 2 1,200 4,953 566,971 573,124 20.7% significant impact on UFG volumes.
2 to 3 725 1,645 214,987 217,357 7.9%
3 to 7 1,591 8,115 800,205 809,911 29.3%
7 to 10 329 6,035 966,278 972,642 35.2%
Total 4,164 23,060 2,737,983 2,765,207 100%

 The meter ageing analysis (Table ME -6a and 6b) of SNGPL  Approximately 14.5% (615) of the industrial meters need
shows the application of meter replacement policy by the to be replaced as their useful life has lapsed. If these are
company. kept in operation any longer, the contribution to the UFG as
a result of measurement errors may increase.
Table ME – 6a Meter Ageing
SNGPL
Industrial Commercial
 Whereas, 74,714 domestic meters are over 20 years old
Age Years Meters Percentage Age Years Meters Percentage
and therefore need to be replaced with new meters to
prevent any unbilled gas from being consumed by the
Upto 1 3,638 85.5% Upto 7 46,214 96.9%
customer, further contributing to a rise in UFG levels.
1–2 550 12.9% 7 – 10 957 2.0%
2–4 62 1.5% 10 – 15 483 1.0%
15 and
4 and above 3 0.1% 27 0.1%
above
4253 100% 47,681 100%
Table ME – 6b Meter Ageing

SNGPL
Special Domestic Domestic
Age Years Meters Percentage Age Years Meters Percentage
Upto 7 12,054 89.1% Upto 16 4,886,483 95.4%
7 – 10 621 4.6% 16 – 20 160,170 3.1%
10 – 15 515 3.8% 20 – 25 55,211 1.1%
15 and above 340 2.5% 2 above 19,503 0.4%
Total 13,530 100% Total 5,121,367 100%

Contributing Factor 6 – Other Contributing Factors
BTU Equivalence and 3rd Party Access OGRA has allowed a provisional adjustment for this excess
volume to be accounted for as deemed sales for UFG
 As stated in “the Low BTU pricing policy, 2012”, the Low
calculation purposes. The same excess received by SNGPL
BTU gas contains large volume of undesirable contents of
is treated as part of internal consumption.
natural gases like carbon dioxide, nitrogen and hydrogen
sulfide with low contents of methane. Increase in Gas Price
 At present, SNGPL imports Re-gasified liquid Natural
 Increase in the cost of gas purchased from exploration
Gas(RLNG) to meet the natural gas demand of the existing
companies is also considered as another factor
consumers, where SSGC transports RLNG received in
contributing towards UFG level.
Karachi to SNGPL through its own network.
 Increase in cost of gas for Sui Companies results in an
 As per third party access rules, the transporter of gas i.e..
increase in the gas tariffs. Incremental gas tariffs with
Sui Companies are required to be paid for transportation
inadequate monitoring of gas networks encourage theft,
charges for the contracted capacities in terms of volumes
meter tempering and other means to avoid gas expenses.
at the entry point and shall account for this gas in terms of
equivalent energy value at exit point irrespective of the Shift in Sales Mix
volumes. With existing transmission lines, probability of  As per the License1 of Sui Companies § 1.2.2, “Bulk or
commingling of gas is higher and consequently affects the wholesale consumer means a consumer who
Gas Calorific Value (GCV) of the transmitted gas becomes purchases natural gas for resale”. Internationally there is
low. no benchmark definition available with respect to bulk
 In the absence of a dedicated transportation line for RLNG, sales or retail sales separately. Sui Companies refer
currently SSGC swaps the gas from its indigenous sources consumers with large volumetric purchases in heavy
to SNGPL and distributes RLNG into its own consumers. industrial sector viz. power, fertilizer, cement and steel as
The swapped gas is of lower GCV and to compensate it in bulk sales; reason being special needs of their supply. It is
terms of energy, SSGC delivers extra volume to SNGPL. a presumed reflective of theft, leakages and measurement
This difference of gas volume received at entry point and errors as a result of expansion of retail sales.
gas volume provided to SNGPL contributes to UFG level  Sui Companies consider gas resellers as special domestic
for SSGC. customers. For the purpose of this report and simplification
 SSGC claims that the issue is temporary and a dedicated for our discussions we have considered bulk sale as sales
line for transportation of RLNG is under construction. made to large size industries of the country.

Contributing Factor 7 – Impact of Bulk to Retail Shift
 To better forecast UFG levels and revenue / budgetary Sales Mix Analysis
requirements, Sui Companies bifurcate their supply/sales
mix into bulk sales (i.e.. power, fertilizer, cement & steel)  Sales mix or Gas Available For Sale (GAFS) to Bulk was
and retail sales (i.e.. Industrial, Commercial, CNG, SSGC: 52% / SNGPL: 45% in FY 2004 which gradually
Domestic and Special Domestic). Sui companies refer to decreased and has plunged to SSGC: 32% / SNGPL:
this sale ratio between Sales Mix. 25% in FY 2016. This shift is mainly because of the
Socio-Economic agenda being pursued by Government
 With the constant growth of companies and various
of Pakistan (GoP) to provide gas to the masses across
interventions to address evolving needs of the country, the
the country.
demand for gas supply has changed. Consequently, sales
mix has also changed. Sales mix of bulk and retail for SSGC Sales Mix
73% 75% 76% 75%
SSGC and SNGPL from FY 2004 to FY 2016 is provided in 350 70% 68% 80%
Table BR 1. 300 55% 56% 57%
61% 70%
250 48% 51% 51% 60%
Table BR - 1 Bulk to Retail Sale Mix 50%
MMCF
200
SSGC SNGPL 40%
150
Bulk Retail Bulk Bulk Retail Bulk 30%
GAFS GAFS %age GAFS GAFS %age 100 20%
Year Volumes in BCF 50 10%
2004 178 163 52% 219 266 45% 0 0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
2005 180 184 49% 259 317 45%
Bulk Retail Retail
2006 188 196 49% 244 369 40% %age
2007 175 211 45% 199 426 32% SNGPL Sales Mix
2008 178 231 44% 190 460 29% 600 100%
181 241 43% 157 496 24% 76% 77% 76% 77% 79% 78% 78% 75%
2009 68% 71% 80%
2010 173 266 39% 148 502 23% 400 55% 55%
60%
2011 119 277 30% 162 503 24% 60%
2012 108 298 27% 158 517 23%
MMCF
40%
2013 104 314 25% 135 503 21% 200
2014 102 321 24% 128 454 22% 20%
2015 110 324 25% 117 405 22%
0 0%
2016 148 320 32% 126 381 25% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
_______________________________ Source: SSGC and SNGPL Information Set [2016]
1 The License dated 3 Sep 2003 issued to SSGC and SNGPL by the Authority. Bulk Retail Retail
%age

Contributing Factor 7 – Bulk to Retail Shift (Cont.)
 Sui Companies usually receive directives from GoP / Table BR – 2 Expansion in Retail
Governmental bodies/ Public Representatives to lay
networks in new towns, villages (including remote SSGC SNGPL
locations) for new gas connections. We were informed Distribution Domestic Distribution Domestic
that Sui Companies have consistently documented their Network Consumers Network Consumers
dissent for these new connections in remote locations Year KMs Million KMs Million
where they claim that it is difficult to maintain and 2004 24,339 1.71 38,258 2.26
safeguard a mostly domestic network. 2005 25,752 1.77 42,192 2.44
 Further, continuous reduction of gas input from indigenous 2006 27,542 1.84 46,964 2.64
gas sources is another constraint for SNGPL. 2007 29,830 1.92 52,394 2.87
Consequently, SNGPL has performed load curtailment of 2008 31,930 2.05 59,951 3.10
industrial customers within the Retail sector to meet the 2009 34,282 2.13 67,449 3.36
demands of existing as well as new domestic consumers. 2010 36,785 2.22 75,653 3.61
 Also, Sui Companies are required to comply with the Gas 2011 39,253 2.34 81,828 3.84
Allocation Policy issued by the Authority in 2005 and its 2012 40,905 2.46 87,796 4.15
subsequent amendments. This policy sets the priority of 2013 42,360 2.55 93,646 4.39
gas allocation to various customer classes. The allocation 2014 43,090 2.62 95,855 4.67
has also contributed to the shift in bulk and retail sales. 2015 43,890 2.68 97,300 4.91
With these interventions for domestic supplies, the gas CAGR 5.51% 4.16% 8.86% 7.32%
distribution network has grown considerably. Refer Table Source: SSGC and SNGPL Information Set [2016]
BR – 2 for growth analysis.  Monitoring & maintenance of bulk metering is controllable

 Gas supply to bulk customers is mainly through dedicated because of a manageable clientele. Refer Annexure Q.1 &
lines designed to operate at high pressures and hence Q.2 for list of bulk clientele with volumes for past 5 years.
contribute minimum leakages and pilferages. Further, Impact of Changes in Sales Mix on UFG Levels
measurement errors of the meters in bulk sales are
predominantly in the accuracy range of ±1%.  Bulk Sales with controllable clientele and close monitoring
has insignificant gas losses. Therefore, UFG level in bulk
sales is around 0.5% of Gas AFS.

Contributing Factor 7 – Bulk to Retail Shift (Cont.)
 Whereas, UFG level in retail vis-à-vis bulk sales is  Further, regular upgrades require extensive work which is
considerably high due to various reasons such as gas theft, not only expensive but needs coordination and approvals
gas leakages, measurement errors and spaghetti networks of various government departments and bodies. Therefore,
etc. These contributing factors are relatively controllable in Sui companies contend that the companies are
bulk sales. handicapped due to coordination and approval issues.
 The new domestic connections provided in pursuance of  As discussed in Background section of the report, OGRA
the “Gas Allocation Policy” and governmental reforms initially stipulated a benchmark rate in FY 2004 to control
have increased the network length in the last decade as UFG level having considerations to the then UFG level of
shown in Table BR-2. The expanded networks in retail Sui Companies. Sui Companies are of the view that the
sector are susceptible to gas pilferages, leakages and dynamics of the business are now changed resulting in
measurement errors. adverse operating conditions and undesirable shift in Sales
 This growth in distribution networks requires improved Mix. With a plea that the shift in sales mix over the years
monitoring and measurement mechanism. Apparently, was beyond their control mainly because of government
efforts made by Sui Companies to improve maintenance, interventions, Sui Companies on various occasions
control and monitoring mechanism for this exponential requested government representative committee viz.
growth was not sufficient; which has exacerbated the UFG Economic Coordination Committee to comprehend the
level in the recent years. Sui Companies claim that the issue.
management and monitoring of these complex networks is  As mentioned ECC advised OGRA to provisionally allow
cumbersome and expensive. volumes as deemed gas sales volumes against impact of
 The tariff mechanism of Sui Companies is designed in a change in sales mix on UFG, using the base year 2004.
way that that cost of maintenance and upgrading the  Subsequently the Authority in FRR of Sui Companies of FY
network is passed on to the consumers by including it in 2013, FY 2014 & FY 2015 partially allowed volumes against
the gas prices. However, increasing tariffs was also not gas volume pilfered by non-consumers and gas losses in
conducive for Sui Companies being against socio- law affected areas. The Authority however, did not allow
economic objectives of the government. volumes claimed against impact of change in sales mix and
was made subject to the recommendations of the UFG
study.

Impact Analysis of UFG
Effect of UFG Disallowance
Effect of UFG Disallowance on tariffs Sensitivity to Financial Position of Sui Companies
 For the purpose of Annual Revenue Requirement  The effect of UFG disallowances on the financial outlook of
calculation, UFG disallowance1 is subtracted from the Sui Companies is provided on the following pages where we
“Cost of gas sold” which affects the “increase / decrease have endeavored to analyze the impact of varying UFG
requested in average prescribed price”. Sui Companies are disallowance rates on the net equity of the Companies.
required to account for the UFG disallowance. Refer Table
 It is evident that an immediate financial improvement action
RR 1 for details.
is required to provide the companies a breathing space and
 In recent years reported UFG has shown an increasing time to consolidate and augment their measurement
trend. However, due to stay order from the honorable High capacities as well as help them in implementing controls
Court the Authority has allowed UFG to the extent over continuously increasing UFG.
mentioned in the stay order and provisional adjustment for
theft by non-consumer and for claim relating to law and  In the past five years Sui Companies have faced a constant
order affected areas. reduction in its annual reported profits, as a result the
company's' net equity has also deteriorated to a significant
Table RR 1- Revenue Requirement extent. In the event that this trend continues the companies
could face situation where validity of going concern
Particulars PKR. / MMBTU assumption may be questioned for the preparation of
Cost of gas sold XXX financial statements.
UFG disallowance (XXX)

 To demonstrate this impact the current effective UFG
allowance of 8.5% and 7% is assumed to prevail in the
Transmission & distribution and Elements2 XXX future for SSGC and SNGPL respectively. This effective rate
Cost of service / prescribed price XXX
includes the existing UFG benchmark rate and the other
allowances currently being granted to the Sui Companies as
Current average prescribed price XXX deemed sales adjustment.
Inc. / (Dec) req. in avg. prescribed price XXX _____________
1 – UFG disallowance is the excess of total UFG over UFG Allowed by the Authority.
Revenue Requirement XXX 2 – Operational Elements are Shortfall of previous year plus depreciation, return on net
average operating fixed assets and Subsidy for LPG Air-Mix Project less other incomes.
(Refer Annexure G - Revenue Requirement)

Effect of UFG Disallowance
 The proposed roadmap, which spreads over a period of five – Estimated WACOG growth is expected to be:
years, addresses the measures that companies need to take
2016 2017 2018 2019 2020
to improve their existing predicament.
Million PKR/MMCF
 To enable the companies to implement these measures it is 320.2 268.3 282.01 295.7 310.4
necessary to provide Sui Companies with time period in
which they work on improving the UFG control measures
without facing further losses/ going bankrupt. For this – The values for Gas AFS is based on the Sui Companies
purpose a favorable rate, at which the Companies' provided projections.
deteriorated equity can be recovered, needs to be allowed to – Working Capital is the difference of projected current
the companies temporarily and this has been presented in assets and current liabilities, which balances the
the analysis as follows. projected statements.
 For our recommendation regarding the allowance to be – UFG levels of SSGC and SNGPL are assumed to remain
granted please refer the chapter 'Our Recommendations‘. constant at 15%, 13% p.a. during the period beginning
2016 and ending 2020 i.e.. optimism that UFG will not
be let to grow further.
Key Assumptions to the Analysis
– Equity and reserves remains constant throughout the
 The following assumptions have been used in the
period of the forecast as shareholders and investors may
preparation of the financial projections:
not choose to put their money at stake in current
– Non-current assets are assumed to grow at 6.28%/ situation.
6.35% annually for SSGC and SNGPL respectively in line
with the growths observed in the past five year.
– Non-current assets are assumed to grow at 4.93%/
6.22% annually SSGC and SNGPL respectively in line
with the growths observed in the past five year.

Sensitivity Analysis - SSGC
SSGC - Financial Position 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Amounts in PKR Billion
Non-current Assets 60.79 67.52 71.07 73.46 77.54 82.41 87.58 93.08 98.92 105.12
Non-current Liabilities (34.83) (39.86) (45.50) (42.34) (42.21) (44.29) (46.48) (48.77) (51.17) (53.69)
Working Capital - Net 2.07 0.71 0.79 (8.05) (17.44) (22.03) (25.04) (28.09) (31.24) (34.52)
Net Assets 28.03 28.37 26.37 23.06 17.89 16.08 16.06 16.22 16.50 16.91
Equity and Reserves 11.57 13.77 13.80 13.84 13.96 14.05 14.05 14.05 14.05 14.05
Surplus on Rev. of Fixed Assets 10.25 10.25 10.25 10.25 10.25 10.25 10.25 10.25 10.25 10.25
Accumulated Profit / (Loss) 6.21 4.34 2.32 (1.13) (6.32) (8.22) (8.24) (8.08) (7.80) (7.39)
Net Equity 28.03 28.37 26.37 22.96 17.89 16.08 16.06 16.22 16.50 16.91
Equity with UFG Allow. 15% - 4.5% (0.17) 0.63 0.53 0.50 0.57
15% - 5% 0.58 1.27 1.21 1.22 1.33
15% - 6% 2.08 2.57 2.57 2.66 2.86
15% - 7% 3.58 3.87 3.93 4.10 4.38
15% - 8.5% 17.78 18.11 16.12 12.71 7.64 5.83 5.81 5.97 6.25 6.66
15% - 9% 6.58 6.46 6.65 6.97 7.42
15% - 10% 8.08 7.76 8.01 8.41 8.94
15% - 4.5% 15.74 13.61 14.27 15.09 15.96
15% - 5% 14.99 12.96 13.59 14.37 15.20
15% - 6% 13.49 11.67 12.23 12.93 13.68
15% - 7% 11.99 10.37 10.87 11.49 12.16
UFG Disallowance - Current / 8.5% 2.47 3.88 1.92 9.94 10.28 9.75 8.43 8.84 9.34 9.88
15% - 9% 9.00 7.78 8.16 8.62 9.12
15% - 10% 7.50 6.48 6.80 7.18 7.60
Gas Available for Sale (Bcf) 396.16 405.74 418.20 422.70 433.80 468.24 483.15 481.99 485.86 489.77
Gas Sales (Bcf) 358.81 361.91 376.37 357.46 367.86 398.00 410.68 409.69 412.98 416.30
UFG Volume Total (Bcf) 37.35 43.83 41.83 65.24 65.94 70.24 72.47 72.30 72.88 73.47
UFG Total % 9.43% 10.80% 10.00% 15.43% 15.20% 15.00% 15.00% 15.00% 15.00% 15.00%

Sensitivity Analysis - SNGPL
SNGPL - Financial Position 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Amounts in PKR Billion
Non-current Assets 91.3 95.1 100.9 106.8 116.8 124 132 140 149 159
Non-current Liabilities (69.6) (74.4) (69.3) (74.0) (88.6) (94.1) (99.9) (106.1) (112.7) (119.7)
Working Capital - Net (3.0) 0.5 (21.6) (26.8) (24.6) (26.5) (26.0) (24.5) (21.2) (16.5)
Net Assets 18.7 21.2 10.0 6.1 3.6 3.6 6.1 9.8 15.4 22.6
Equity and Reserves 10.1 10.4 10.9 10.9 10.9 11.0 11.0 11.0 11.0 11.0
Surplus on Rev. of Fixed Assets
Accumulated Profit / (Loss) 8.6 10.9 (0.9) (4.9) (7.4) (7.4) (4.9) (1.2) 4.4 11.6
Net Equity 18.7 21.2 10.0 6.1 3.6 3.6 6.1 9.8 15.4 22.6
Equity with UFG Allow. 13% - 4.5% (0.4) 2.8 6.6 12.6 20.1
13% - 5% 0.4 3.4 7.2 13.1 20.6
13% - 6% 2.0 4.8 8.5 14.2 21.6
13% - 7% 19 21 10.0 6.1 3.6 3.6 6.1 9.8 15.4 22.6
13% - 8% 5.2 7.4 11.1 16.5 23.6
13% - 9% 6.8 8.8 12.4 17.6 24.7
13% - 10% 8.5 10.1 13.7 18.8 25.7
13% - 4.5% 13.7 11.3 10.9 9.6 8.6
13% - 5% 12.9 10.7 10.3 9.0 8.1
13% - 6% 11.3 9.3 9.0 7.9 7.1
UFG Disallowance - Current / 7% 7.18 6.52 13.6 12.3 11.6 9.7 8.0 7.7 6.8 6.1
13% - 8% 8.1 6.7 6.4 5.6 5.1
13% - 9% 6.5 5.3 5.1 4.5 4.1
13% - 10% 4.8 4.0 3.8 3.4 3.1
Gas Available for Sale (Bcf) 665.24 674.87 638.08 581.96 521.53 504.25 496.91 454.92 382.11 327.62
Gas Sales (Bcf) 581.9 597.28 552.62 506.42 450.84 438.70 432.31 395.78 332.44 285.03
UFG Volume Total (Bcf) 83.34 77.59 85.46 75.54 70.69 65.55 64.60 59.14 49.67 42.59
UFG Total % 12.53% 11.50% 13.39% 12.98% 13.55% 13.00% 13.00% 13.00% 13.00% 13.00%

Conclusion to the Situational
Assessment
Conclusion to the situational assessment
Conclusion to the situational assessment hypotheses. There is no validation mechanism at OGRA for
independent verification of such claims.
Theft
 Theft by consumers or non-consumers once detected can
 Albeit various reasons may be associated with theft of
be accounted for and may not be considered as UFG.
natural gas in Pakistan but the key drivers which we
identified as significant impediments are:  A detected theft case when recorded is a claim to be
– continuous growth of the gas distribution network, recovered from the consumer or non-consumer, with or
without a legal recourse using gas company’s efforts and
– insufficient and delayed legislative support for
resources. If not recovered or is no more recoverable it
recovery of detected cases,
becomes an issue of debtors management. Either the claim
– inadequate monitoring and maintenance efforts of Sui is reversed by writing it off or is provided for till it is
Companies; and recovered or confirmed to be non-recoverable.
– Expectation of free supply in gas producing areas.
 The volume pilfered not detected is what remains in overall
 The responsibility to detect, monitor and prevent theft is of UFG volume and is perceived to form a significant portion
Sui Companies and disconnection of gas pilferers is the of it. The more the volume of pilfered gas is detected the
right of Sui Companies. The number of cases detected by less is the UFG.
both utilities as a percentage of their total customer base
in 2015 is less than 1%, this demonstrates that efforts  For UFG allowance purpose the key information is how
need to be improved as theft contributes a major portion of much out of the total theft volume is beyond the control of
overall UFG Sui Companies. For this purpose, first all measures need to
be in place to quantify theft volumes and then certain
 Existing procedures provided by OGRA may be appropriate volumes need to be claimed out of it as undetectable /
to provide basic guidance in handling and recording of gas controllable. From the analysis it is clear that in the existing
volumes relating to theft cases detected. Increased efforts situation such information is not available. Therefore, we
are still required by Sui Companies to curb gas theft and suggest that under UFG control program, efforts should be
overall UFG losses which requires time and dedicated made by Sui Companies to build capacity to track and
resources. measure theft by non-consumer.
 The process of allowing claims of theft by non-consumers
is prone to errors as volumes are based on judgments and

 However, owing to factors listed above and other Minimum Billing
complexities in retail supply of gas, arguments for non-  Customers may be subject to minimum billing due to
controllability of theft by Sui Companies carries weight and following reasons:
needs to be addressed
– The consumer has in actual consumed less than the
Law and Order Affected Areas notified minimum consumption (40M3); or
 The premise that due to law and order issues gas – The metering errors (slow, PUG, sticky, etc.) have
companies cannot carry out their billing and recovery resulted in less volumes being metered than the
activities in certain areas and hence the volume of gas consumer’s actual consumption which may be higher
supplied to such areas should be allowed, carries critical or less than the notified minimum consumption(40M3)
implications at national level.  No segregation was made available as to what extent
 If gas companies cannot operate in such areas then there these minimum billed consumers represent the actual less
should be an evidence that other utilities and state than 40M3 consumption and how many of the consumers
machinery was also unable to carry out their operations in were billed at minimum owing to measurement errors.
those areas. ECC acceptance to the issue is provisional.  As in cases of malfunctioned meters the difference
However, NEPRA while determining Revenue requirement between meter reading and minimum volume may not
for power sector considers recovery challenges in such reflect the actual gas supplied and hence that may remain
areas and provide allowance on account for law and order un-accounted. Quantifying such volumes at company level
situations. is only possible where malfunctioned meters are fully
 Nevertheless, only the Federal Government can declare an identified which is not the case.
area as “law & order affected” where Sui companies can Leakages
claim any relief on losses. However, there is a remote a
 Leakage (overhead and underground) as a result of the size
chance that Federal Government may declare such areas
and age of network, corrosion and third party damage is
as law & order affected accepting no writ of the
also a major contributor to overall UFG levels of Sui
Government. The claims of SSGC and SNGPL against gas
Companies.
losses in the law and order affected areas have grown by
approximately 80% and 200% over the last five years and  As discussed earlier the leak rate as per the studies
need to be curbed to restrict the growing levels of total conducted by Sui Companies are 4.9 and 2.2 leaks/ km for
reported UFG of the Sui Companies. SSGC and SNGPL.

 As at the financial year ended 2015, 35% and 22% of reconciled and accounted for.
SSGC and SNGPL’s distribution network respectively was  Furthermore, the network of both Sui Companies is not
over 20 years of age. In contrast, during the corresponding segmented properly, hence, gas is supplied to areas
year rehabilitation activities were carried out on just 0.21% through looped stations, which acts as a hindrance in
and 0.24% of the distribution networks of the companies, reconciling UFG losses for specific areas.
respectively.  In order to effectively monitor and measure gas supply,
network must also be segmented to identify area wise gas
 Similarly, CP over the distribution network currently sale and consumption.
extends to 45% and 66% of SSGC and SNGPL’s network  Internationally measurement based mechanism are used
(steel); this is a major reason for corrosion of the steel to regulate and control UFG.
pipes resulting in leakages.
 The above statistics reflect weaknesses of Sui Companies Changes in Sales Mix
to implement proper controls for the reduction of gas  We have discussed in detail the claims of the Sui Companies
relating to the impact of the change in sales mix on UFG and the
losses due to leakages. We understand that there is reasoning behind those claims in the chapter ‘UFG contributing
substantial room for improvement and the average leakage factors’.
rate could be reduced to an acceptable level and in line  As per Provision of Rule No. 20 of NGRA Licensing Rules, 2002
with international practices. – Obligation of licensees, Sui Companies with the consent of the
Measurement Authority, are allowed not to provide transmission or distribution
service or make sales of natural gas in the areas where it is not
 UFG has always been closely associated with data and commercially / financially viable unless GoP provides special
meter errors. Improved metering capacity at Sui financial arrangements to Sui Companies.
Companies is a concern to curb overall UFG losses.  In addition Terms and Condition 13.1 and underlying sub
conditions of the Licenses of Sui Companies provides a corridor
 Deficiencies exist in current measurement capacity at both to provide services to persons/consumers who are technically
Sui Companies as district/town/sub-town metered with and economically viable.
EVCs installed for SSGC and SNGPL are only around 24%  Since 2003 Sui Companies have grown their networks
and 12% respectively. This needs to be brought to 100% exponentially, majorly on the basis of government elevation
metering in the near future in line with better practices, programs, without considering or confronting on grounds of the
increasing visibility of the network and ensuring that gas financial viability of the expansions.
passing through every point in the system is accurately
measured, © 2016 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International

 On the other hand, we understand that it is the  This may result in significant risk to financial & operational
responsibility of Sui Companies to develop capabilities to losses and erosion of equity for both the companies. If the
cater expansion and the growing clientele. Contesting existing trend continues the companies could face a
expansions without accepting incongruous measures situation where financial statements may be prepared
adopted by Sui Companies over the period is not balanced. without a valid going concern assumption.
 In the past decade the reported UFG of SSGC and SNGPL  Based on the assessment of the existing operating
has increased by 75% and 63% respectively. However this environments of Sui Companies and impact analyses of
increase is not proportionate to the shift in sales mix over UFG disallowance performed on the information received,
the corresponding period. we understand that there are areas of the companies’
 Also, we understand that the definition of bulk as operational and strategic plans that require immediate
prescribed and the definition interpreted or commonly improvement for the resolution of UFG issue.
used by Sui Companies and the Authority together is  Currently Sui Companies’ strategy for UFG management is
different. The Sui Companies may align their practices to reactive rather than preventive. Sui Companies have not
the definition of ‘Bulk’ according to the license agreement. implemented sufficient measures/ controls that can help
companies deal with the UFG issue in a sustainable
 Albeit the assertions of the of Sui Companies in this regard
manner, rather temporary relief is sought in the form of
are correct to some extent but the solution lies in
allowances to reduce annual losses. We understand that
strengthening of the infrastructure and implementation of
failure to control gas losses stems from the absence of a
improved UFG control measures to reduce gas losses as a
mindset that owns this problem and that puts a cohesive
result of measurement errors, theft and leakages.
and coordinated short to long term strategy in place to
Overall Conclusion address the root causes of UFG.
 We recommend that Sui Companies should focus their
 Sui Companies do not have appropriate control over efforts on developing a long term UFG management and
constantly growing UFG levels resulting from the various control program divided into numerous medium to short
contributing factors as discussed in our situational term objectives aimed at reducing the UFG levels to an
assessment. acceptable level in the long run in line with the
international better practices. We have proposed
objectives in section III of the report.

Section I
Our Recommendations
Our Recommendations
Based on our assessment of the existing practices and Cylinder model is easy to operate as only a flick of a switch or
infrastructure of the Sui Companies in relation to UFG, we the press of a button, gas will be at the doorstep of the
recommend the following UFG control measures: consumers. LPG Cylinders can be refilled from dedicated
100% Metering stations or delivered to the end consumer.
UFG has always been closely associated with data and meter
The cylinders can also be equipped with auto-change
errors. Increased visibility of the network leading to metering at
regulators having a visual indicator to show the consumers
all possible levels should be ensured so that the gas passing
when a cylinder is empty and needs to be replenished. A bottle
through every point in the system is accurately measured,
(cylinder) contains 45kg of gas when full, which equals 2250
reconciled and accounted for. This will reduce deficiencies in the
mega joules or 625 kilowatts of energy, ”OnGas-Newzealand”. A
existing measurement mechanism and lead to reduced gas
feasibility study can be conducted for implementing such
losses and future gas sustainability. Internationally, this is the
model locally initially on pilot basis, then for difficult areas
most used UFG monitoring better practice.
where pipeline based supply is difficult to manage and is
expensive.
Network Segmentation Cost differential of the two models can be analyzed and
In order to effectively monitor and measure gas supply, the gas subsidized as appropriate.
network must be segmented, making it easier to identify and pin
point susceptible area and if required, cut gas supply of identified Key Monitoring Indicators
areas with precision where gas is being pilfered. Lack of proper
segmentation of the gas supply network will act as a barrier in To effectively streamline the UFG reduction plan and assist the
reconciling UFG and their respective factors to the overall gas Sui Companies and the Authority to monitor and control the
losses. UFG reduction, a set of quantifiable KMIs must be
implemented and achieved annually over a period of five (5)
Cylinder Model years, aligned to the overall UFG reduction strategy. This will
Bottled (cylinder) LPG is the perfect option for homes that do not allow the utilities to compare their performance in terms of
have access to a piped network ”OnGas-Newzealand”. This is an meeting their strategic and operational goals. Further, UFG
easy solution to provide gas to areas where metering and allowance will be directly linked to the achievement of these
segmentation is not possible. KMIs. The same is discussed in detail in Section III of the
report.

Our Recommendations (Cont.)
Regional UFG Management  Roll out of Smart Meters which will have a positive
The responsibility of UFG control should be assigned to regional impact on reducing gas theft.
UFG teams. The regional teams shall be assigned annual UFG  This will also lead to removal of existing temper, give
reduction targets for their specific regions and their tempering alerts and provide detailed and accurate
performance evaluated accordingly. This regional accountability consumption data.
will drive management to peak performance that can be
Cost of Service Study
incentivized according to achievement of region specific annual
UFG reduction targets. Determine actual cost of transporting gas to the end consumer
based on individual cost drivers for each consumer class,
Two-Yearly Meter Inspections spread geographically across the network.
The Sui Companies to conduct meter inspections of all the This will lead to revision of tariffs and further identification of
connection over the network every two years. The inspection new consumer classes. This will enable differential pricing
will include an inspection of the meter and associated based on cost of service for specific customer segments and
equipment for evidence of theft and tempering etc. This geographies.
approach will help utilities assess the state of their network
metering, deter the consumers from tempering them, Detect, Monitor and Control
additionally all slow/sticky meters will also be rectified.
It is the responsibility of Sui Companies to detect, monitor and
Technological Advancement prevent theft, however, the Sui Companies have a reactive
approach rather a proactive one to control it. Improved
Technological advancements within the system at all possible
arrangements to detect and prevent theft, designed to deter
avenues will bring in an efficient mechanism to control UFG
consumers from committing an offence are expected to have a
losses, measures can be sought in all avenues including but not
positive impact on reduction of theft and overall UFG losses.
limited to:
 Disconnection of gas pilferers shall be the right of Sui
 Increased installation of meters with EVCs.
Companies.
 Remote meter reading thorough GPRS based systems.
 A validation mechanism/ special audit is recommended
 Establish separate data cells for analysis of the EVC
for an independent verification of gas volumes claimed
data.
and to protect consumers from any unjust claims made
by the Sui Companies.

Ring Fencing Recommendation on UFG calculation and treatment
Particular monitoring of areas susceptible to gas pilferage will  Based on our analysis of the existing UFG calculation
involve isolating the susceptible and affected area. The methodology along with reservation made by Sui
boundary of the area shall be defined and the gas passing Companies and considering the international better
through the region shall be measured through the installation of practices for calculating UFG. We recommend that the
a bulk/ check meters Authority may allow the following formula for the UFG
calculation purpose.
Use of bulk meters
Bulk meters are specialized meters with the capacity to operate (𝐆𝐚𝐬 𝐑𝐞𝐜𝐞𝐢𝐯𝐞𝐝 − 𝐆𝐚𝐬 𝐃𝐞𝐥𝐢𝐯𝐞𝐫𝐞𝐝) − 𝐀𝐝𝐣𝐮𝐬𝐭𝐦𝐞𝐧𝐭𝐬
𝐔𝐅𝐆 % =
at a pressure level higher than the normal operating pressure of 𝐆𝐚𝐬 𝐑𝐞𝐜𝐞𝐢𝐯𝐞𝐝
the domestic meters enabling them to accurately measure the
gas passing through the distribution main. Where,
These bulk meters may be installed in the law and order Gas Received, is the natural gas volume metered as
affected areas at the last operational point of the region and gas received by the licensee during a financial year;
passing into the area shall be measured in order to ensure that Gas Delivered, is the volume of natural gas metered as
volume is quantified. This shall ensure verification of the gas having been delivered by the licensee to its consumers;
claimed as deemed sales under the head ‘Law and Order and
Affected Areas’ in the UFG computation by the Sui Companies.
Adjustments, is the natural gas used for self consumption
by the licensee for the purpose of its regulated activity and
Leakage Management Plan such other quantity as may be allowed by the Authority for
A leakage management plan will be implemented focused on use by the licensee in the operation and maintenance of its
replacing deteriorating parts of the underground pipelines, regulated activity.
leading to increased rehabilitation of the network and increased
follow up on all customer leak complaints through
establishment of a dedicated customer hotline to report the
same.

Recommendations relating to UFG Allowance  Albeit, Sui companies present their UFG volumes in terms
of contributing factors but the basis of these presentations
 As per the European Regulators’ Group for Electricity and
are hypothetical assumptions rather than actual
Gas (ERGEG) the determination of network losses can be
measurements.
done only if the network has been metered adequately.
Robust measurement of network losses is possible in  To enable robust UFG benchmarking based on the UFG
networks with continuous metering systems installed and contributing factors, the existing measurement capacity
operating at full capacity. needs to be augmented to the extent which enables the
measurement of the UFG volumes for a particular network
 Nevertheless, approaches for measurement adopted by
segment.
regulators internationally for UFG quantification are
possible when the gas network is fully metered and is  Consequently, benchmarking of UFG based on its
isolated, i.e.. the number of gas receipt points or delivery contributing factors is not appropriate and a one go
points are metered and finite. Within the large pipeline rehabilitation attempt to augment the financial outlook of
system, an isolated system simplifies the quantification of Sui Companies is challenging.
gas within the network segments at any particular time. Model for incremental improvement for UFG control
 However, we identified that currently Sui Companies do  Interventions at strategic and operational levels of the Sui
not have measurement mechanism installed at full capacity Companies are required for the resolution of UFG issue.
on their networks. Consequently, actual UFG level for a Failure to control gas losses stems from the absence of a
particular network segment cannot be quantified precisely mindset that owns this problem and puts a cohesive and
(i.e. from SMS to TBS/DRS, TBS/DRS to CMS or assigned coordinated strategy to address the same.
to any underlying factor like leakage, theft or measurement
error).  In this regard, UFG Control framework with an objective of
 We believe that Sui companies with their existing “Enhanced UFG Control” is proposed.
measurement mechanism are unable to measure the  This framework requires improvement in the following four
actual difference between the volume received and areas of the Sui Companies:
dispatched for a particular network segment. Accordingly, − Network Measurement and Visibility;
with the existing setup it is not possible to identify actual − Network Rehabilitation;
gas losses associated with each contributing factor in UFG.

− Theft Control; and  Based on our study of the UFG Allowances as applicable in
− Research & Development. various international regulatory jurisdictions we have identified
 To better ensure implementation of the UFG control country wise UFG allowances and demographical indicators
framework, the implementation is translated into a UFG shown in the Table R -1.
Benchmark formula used for calculating UFG Allowance  We recommend that fixed component of UFG allowance for
which is explained under the below caption. Sui Companies may be used by the Authority in line with
internationally accepted UFG benchmarks considering the
UFG Benchmark and Control Formula dynamics and demographics as applicable in Pakistan.
 We propose a two component formula for calculating UFG  UFG allowances are commonly set in correlation with the gas
Allowance viz. Technical Component and Local Operating consumptions and network lengths. For instance in Australia
Conditions Component. UFG allowance rates varies w.r.t. consumption patterns and
UFG Allowance =Gas AFS X ( Rate1 + Rate2 X β ) network size. For AGNL Queensland UFG allowance is 0.5%
whereas for Multinet it is 4.03%. However, in New Zealand a
UFG Rate of 2.45% is defined as a blanket rate.
Technical Local Challenging Performance
Component Conditions Component Factor  Keeping in view the gas consumption of around 41.2 BM3
and a network size of 141,190 Kms in Pakistan along with the
 UFG Allowance is the total UFG Allowance, Gas AFS is the demographical challenges that the country is facing, we
Gas Available for Sale in any year and β denotes the suggest that a fixed component of UFG benchmark rate
cumulative score of Key Monitoring Indicators (KMIs) should be fixed in correlation with the comparable
based on achievement of mutually-agreed Key countries/utilities for the next five years. The fixed rate also
Performance Indicators (KPIs) in a financial year. includes allowance for transmission losses which is calculated
upto 0.5% as per ECC Decision.
Technical Component based on international benchmarks
 The table R-2 provides the total population of the reference
 Rate1 is the benchmark rate based on international countries that we have used for the purpose of our analysis.
practices for technical losses usually inherent to the supply Finding comparable countries remained a challenge, however,
network. based on the nearest matches maximum allowance provided
1 The approved UFG reduction plan is an annual plan submitted by the Sui Companies to the by regulators is 5% and we suggest the same to be applied by
Authority encompassing activities and targets to make necessary efforts to reduce UFG.
the Authority taking a moderate approach.

Table R – 1 - International UFG Allowances
Urban Density Network Consumption UFG

Countries Population Area (Km2)
Population% (P/Km2) (Km) BM3 Benchmark
USA 324,118,787 82.7% 9,155,898 35 2,225,032 759.4 1.41% - 5%**

Canada 36,286,378 81.9% 9,071,595 4 100,000 104.4 2.65%
Germany 80,682,351 77.2% 348,520 232 34,327 77.5 2.16%
United Kingdom 65,111,143 81.7% 241,959 269 39,778 70.2 1.00%
Turkey 79,622,062 71.9% 769,295 104 15,641 48.5 4.20%
Russia 143,439,832 73.2% 16,299,981 9 259,913 409.2 5.00%
Australia 24,309,330 89.2% 7,596,666 3 580,000 38.8 0.5% - 4.03%*
Ukraine 44,624,373 69.5% 579,537 77 45,597 33.8 2.60%
Bangladesh 162,910,864 34.9% 130,172 1252 20,804 22.9 5.00%
New Zealand 4,565,185 87.8% 263,884 17 15,000 5.4 2.45%
Croatia 4,225,001 59.5% 55,960 76 3,020 2.8 3.30%
Pakistan 192,826,502 38.9% 770,998 250 141,190 41.2 -
Source: Central Intelligence Agency (CIA),The world fact book and KPMG Data Bank.
The information presented above is based on facts and figures publicly available and recent statistics of the countries.
The dates of these statistics varies and are between 2013 - 2015.
* 0.5% is the UFG Benchmark for AGNL Queensland and 4.03% is for Multinet.
** 1.41% is the UFG Benchmark for Atlanta and 5% is for Texas.

Table R – 2 - Total population Local operating Conditions Component
Country 2010 2011 2012 2013 2014 2015  Rate2 is the allowance for local challenging conditions as
in Million compared to the world at large. This factor is suggested to
Australia 22.16 22.54 22.91 23.27 23.62 23.97 cover impact of gas losses due to expanding gas supply
Bangladesh 151.62 153.41 155.26 157.16 159.08 161.00
network in retail including law & order affected areas and
making it more prone to theft, leakages, data/meter errors,
Canada 34.13 34.50 34.87 35.23 35.59 35.94
and non-recovery of gas bills from law and order affected
Germany 80.44 80.42 80.48 80.57 80.65 80.69 areas.
New Zealand 4.37 4.40 4.44 4.47 4.50 4.53  Allowance for these challenging conditions is suggested to
Turkey 72.31 73.52 74.85 76.22 77.52 78.67 be 2.6%, calculated on the average claimed volumes of law
USA 309.88 312.4 314.80 317.14 319.45 321.77 and order situations and theft by non-consumers.
UK 62.72 63.16 63.57 63.96 64.33 64.72  As mentioned, the objective of R2 is to provide an
Ukraine 45.65 45.48 45.32 45.17 45.00 44.82
acceptable term relief to Sui Companies to enable them
consolidate their efforts and work in line with their UFG
Croatia 4.32 4.31 4.29,544 4.28 4.26 4.25
Reduction plan, approved and agreed with the Authority.
Pakistan 170 174 177 181 185 189 Therefore, to ensure, appropriate and serious efforts are
Source: The world metering Report [August 2016] directed towards reducing UFG over the agreed term of
five (5) years, the local challenging conditions component is
 Further, to embark a journey reducing UFG to an
linked to the achievement of certain KMIs. Refer Section III
acceptable and desirable level, Sui companies need
for KMIs details.
adequate UFG allowance to make necessary efforts to
reduce UFG while sustaining their financial outlook.
 The study recognizes that Sui Companies have to operate
under local challenging conditions as compared to the
world at large. Accordingly, additional allowance factor is
currently proposed to cover impact of gas losses because
of contributing factors like Law and Order situation, shift in
sales mix and theft by non-consumers.

Table R -3 UFG Relief Working – Allowance for local Operating Conditions
% of GAS
Average Total
SNGPL 2012 2013 2014 2015 2016 (5 Years
(5 Years) Relief
Average)
Claimed Volumes in respect of Law & Order affected Areas 3,377 8,124 10,803 10,048 11,526 8,776 1.5% 3.0%
Claimed Volumes in respect of Theft by Non-Consumers 11,172 10,136 7,406 8,735 5,895 8,669 1.5%
Gas Available for Sale 674,868 638,074 581,961 521,533 506,444 584,576 R2
Average
2.6% approx.
% of GAS
Average Total
SSGC 2012 2013 2014 2015 2016 (5 Years
(5 Years) Relief
Average)
Claimed Volumes in respect of Law & Order affected Areas 1,286 1,950 2,279 2,355 2,467 2,067 0.6% 2.2%
Claimed Volumes in respect of Theft by Non-Consumers 2,059 6,387 8,774 10,420 6,690 6,866 1.6%
405,737 418,396 422,735 433,798 468,299 429,793
Gas Available for Sale

Performance Factor  Albeit specific funds and resources will be required to
 β (Beta) denotes the cumulative efficiency score as achieve these KPIs and augment controls over UFG but the
determined by OGRA of Key Monitoring Indicators (KMIs) benefits expected to be derived in the form of reduced
based on a mutually-agreed UFG control program for a overall UFG levels will be exemplar.
financial year. (refer KMIs in Section III- Way forward)  The performance of Sui Companies against agreed KMIs
shall be validated through an annual review/ assessment by
 The allowance for the challenging conditions is made subject
the Authority itself or through an independent expert.
to ensuring adequate UFG control efforts are made by the Sui
Companies.  Our recommendations will be applicable for the next five
(5) years as required under our scope of work in the
 KPIs and KMIs have been devised in consultation with the
contract, subsequent to which the Authority is advised to
leadership of Sui Companies and the Authority to achieve
review the mechanism and revise the UFG Allowance, if
improvement in the identified four areas of UFG Control
deemed appropriate. However, during the interim revision
framework:
period, the recommended UFG model may remain valid.
− Network Measurement and Visibility;
 For prior years, the Authority may issue directives to close
− Network Rehabilitation;
− Theft Control; and the provisional FRRs as evaluating Sui Companies’
− Research & Development performance against the proposed KMIs for those periods
may not be practicable. FRR for FY 2017 may also be
 All KPIs, together with their respective KMIs, are provided evaluated based on prevailing criteria due to the above
with scores aggregating to a total of 100%. The mentioned reason.
performance factor enables additional relief of 2.6 % for  Further, to compute and evaluate ERRs in prospective
contributing factor representing local conditions, subject to years the Rate 2 may be taken at 50% and the same may
the achievement of KMIs. be actualized in line with the achievement of proposed
 Going forward, OGRA is suggested to monitor KMIs to evaluate respective FRRs on submission.
performance of Sui companies and achievement of KPIs  UFG allowance under all circumstances shall not exceed
vis-à-vis agreed KMIs periodically, at least annually the actual reported UFG.
especially before approval of Final Revenue Requirement
(FRR). UFG control framework aims to bring year on year
improvement in UFG levels.

A common form calculation to demonstrate the proposed UFG Allowance is as follows:
UFG ALLOWANCE ANALYSIS
Based on 1000 MMCF 2015 2016 2017 2018 2019 2020
Gas Available for Sale (mmcf) 1,000 1,025 1,051 1,077 1,104 1,131
UFG (mmcf) 152 155 150 144 139 137

UFG Percentage 15.20% 15.10% 14.30% 13.40% 12.60% 12.10%
UFG Allowance
Rate1 @ 5% 50 51 53 54 55 57
Rate2 @ 2.6 % 26 27 27 28 29 29
Beta Factor @ 80% 0.8 0.8 0.8 0.8 0.8 0.8

UFG Volume Allowance 71 73 74 76 78 80
Effective Allowance % 7.08% 7.08% 7.08% 7.08% 7.08% 7.08%
UFG Disallowed 81 82 76 68 61 57
% age 8.1% 8.0% 7.2% 6.3% 5.5% 5.0%
Beta Factor @ 60% 0.6 0.6 0.6 0.6 0.6 0.6

% age 8.64% 8.54% 7.74% 6.84% 6.04% 5.54%
Beta Factor @ 40% 0.4 0.4 0.4 0.4 0.4 0.4

% age 9.16% 9.06% 8.26% 7.36% 6.56% 6.06%

Section I I –
Way Forward
Way forward
UFG Management and Control Strategy
 The previous sections of the report discuss the historical trends, contributing factors and impact that rising levels of UFG
have on the Sui Companies. To address the latter issue, a structured UFG management and control strategy has been
formulated after thoughtful consultation by both the utilities.
 To streamline UFG reduction plan and assist the Sui companies and the Authority in monitoring the UFG reduction progress
we have devised a set of KMIs. These KMIs are a set of quantifiable outcomes / results that Sui Companies will use to
compare their performance in terms of meeting their strategic and operational goals and if required, take corrective
measures thereof.
 Furthermore, the annual UFG allowances as per our recommendations is directly linked to the achievement of these KMIs.
The accomplishment of the annual targets monitored by the KMIs will make Sui Companies eligible for the annual UFG
allowance in lieu of local challenging conditions to operate.
Proposed Long term plan: Consolidate and Reduce UFG level to 5.0% by FY 2021.
Increased Network Visibility Network Rehabilitation Theft Control Research & Development
Reduce Data & Metering Errors Reduce Leakages and Gas Losses Detect, Monitor & Control Improve and enhance capacity
• Increase network visibility via • Ensure periodic and • Curb gas losses as a result of • Build capacity of the
installation of stringent extensive maintenance of pilferage of gas by registered organization by investing in
measurement facilities and resources to ensure long
the company network to and non-consumers through
enhanced meter witnessing
reduce gas lost as a result of stringent monitoring and term and sustainable
throughout the network.
leakages and network vigilance activities. improvements in the
deterioration. company operations.
Key Monitoring Indicators achievement will be spread over a period of 5 (five) years according to the agreed UFG Reduction strategy
For each category, action points are proposed and these are discussed in the following pages.

Way forward - Metering
Reduce Data & Metering Errors
Increase visibility of the network by ensuring gas passing through the company’s network is accurately measured and
accounted for via the installation of stringent measurement facilities throughout the network
Strategy Corrective Actions Key Monitoring Indicators (Annual) Target
Identification of UFG prone areas Identification of at least 10 areas per region FY 2021
Segmentation of UFG Prone Areas & Installation of Develop and report segments and install check meters on identified
FY 2021
Check Meters for reconciliation UFG prone areas
Reconciliation of Check meters vs CMS Readings on Reconciliation of Segmented Areas on monthly basis and identify
FY 2021
monthly Basis of such Segregated Segmented Areas UFG contributing factors in individual segments
Design gas pipeline network for new areas in a way that Design all segmented and segregated pipeline network for new
FY 2021
the system segregation is possible and check meter can areas and schemes making segregation and installation of check
be installed for reconciliation for better system visibility.
meters possible
Inspection and rectification of all industrial and Inspection and rectification of all industrial consumer meters/ CMS's
commercial consumer meters/ CMS's across the (along across the network once every month (along with reconciliation, On-going
Increased Network Visibility
with reconciliation, seals verification & and by pass seals verification & and by pass checking).
checking). Inspection and rectification of all commercial consumer
meters/CMS's over the network once every three (3) months or On-going
Quarterly - (As above)
Identify and replace defected (slow/ PUG/ sticky) meters Number of defective Industrial meters replaced as a percentage of
On-going
and bring it to an acceptable level of < 5% of total total defective Industrial meters reported/notified per annum
connections. Number of defective Commercial meters replaced as a percentage of
On-going
total defective Commercial meters reported/notified per annum
Number of defective Domestic meters replaced as a percentage of
On-going
total defective Domestic meters reported/notified per annum
Industrial meters replaced as a percentage of total Industrial meters
On-going
Incorporate in the existing system relevant features or qualifying scheduled replacement criteria
acquire a system with built in features of analyzing the Commercial meters replaced as a percentage of total Commercial
On-going
system data and identifying malfunctioning meters on the meters qualifying scheduled replacement criteria
basis of anomalies identified. Domestic meters replaced as a percentage of total Domestic meters
On-going
qualifying scheduled replacement criteria
The company shall carry out an exercise by testing a Carry out quarterly exercise by testing a batch of minimum billed
batch of minimum billed replaced meters to ascertain the replaced meters vs defective meters and shall subsequently make all On-going
actual minimum billing cases vs defective meters efforts to reduce the percentage in minimum billed consumers w.r.t.
present of 25% SSGCL, SNGPL 32%

Way forward - Rehabilitation
Reduce Leakages and gas losses
Ensure periodic and extensive maintenance of the company network to reduce gas lost as a result of leakages and
network deterioration.
Replace overage underground distribution network, increase Length of the underground distribution network
annual rehabilitation of ageing pipelines to control leakages replaced (KMs) as a % of total company’s annual On-going
and corrosion. network replacement target
Acquire tools with improved features for underground Reduce present level of leak rate from 2.2 & 4.9
Network Rehabilitation
leakage detection and reduce the underground leak per Km underground leaks/km in case of SNGPL & SSGC FY 2021
to less than 1 leak/ Km. gradually to less than 1 leak/km in 5 years
Carry out surveys for leak identification and extensive leak

Inspect & Survey twenty (20) % total Domestic
rectification of the overhead leakages and reduce it to less
connections annually and rectification of detected FY 2021
than 1 leak/ connection.
aboveground leak connections
Establish additional Cathodic Protection Stations to ensure

100% Cathodic protection over the network to control
corrosion. No. of CP stations installed/refurbished as a %age of
On-going
CP stations selected for installation/renovation
Ensure availability of alternative source power supply at all
CP stations.

Way forward - Theft Control
Detect, Monitor & Control
Curb gas losses as a result of gas pilferage by registered and non-consumers through stringent monitoring and vigilance
activities.
Enhance/ develop system capabilities to enable automated

analysis of billing data and identification/ of gas pilferers on
the basis of anomalies identified. No. of disconnections in respect of theft as a % of
FY 2019
During the transition period establish a Special Cells/ units total consumer base of the period.
to manually analyze CC&B data to detect abnormal
consumer behavior for identification of gas theft.
Re-inspection of 100% disconnected industrial

On-going
consumers annually.
Theft Control
Re-Inspect all meters disconnected to prevent gas pilferage Re-inspection of 50% disconnected commercial
On-going
through reconnections by the disconnected consumers. consumers annually.
Re-inspection of 20% disconnected domestic

On-going
consumers annually.
Increase the Turnaround Time (TAT) of the resolution of gas

theft complaint applications received during the year.
No. of gas theft/Leakages complaints resolved as a %
On-going
Improve/ Increase the channels for theft complaints available of actual complaints lodged in the same year.
to the general public such as online complaint registration
system etc.

Way forward – Research & Development
Increase and Enhance Capacity
Build capacity of the organization by investing in resources to ensure long term and sustainable improvements in the
company operations.
Conduct mandatory technical training programs for employees
of all levels.
Number of training hours per employee per year. N/A
Ensure the attendance of employees in seminars/ workshops
Research & Development
pertaining to the gas industry, both national and international.

Establish dedicated research and development cells with the
Innovation / New projects to improve cost effective construction,
aim to identify/ develop tools for increased efficiency cost FY 2019
maintenance, emergency repairs & efficiency
reduction.
Identification of higher UFG regions & progress on UFG reduction

Identify high UFG regions and progress are through a Reward/Penalty scheme for Regional Management and FY 2019
relevant staff.
Number of knowledge sharing meetings/ joint sessions attended/

Organize knowledge sharing sessions FY 2019
organized during the period.
Workshop
Improvement in meter testing workshop carried out as per the

Upgrade
Meter
Improvement in meter testing workshop carried out as per required international standards. Certification / affiliation with a
N/A
the required international standards. relevant international forum who shall verify the facility on regular
intervals
Compliance with
the performance
All performance and Service Standard to be complied which are

already in place and communicated to gas companies. It will
and service
standards
require the companies to promptly respond to gas emergencies,

Compliance of performance and service standards. leakages, meter replacement and low pressure complaints, On-going
proper backfilling, adherence to contractual pressure, timely
removal of service lines etc. Audit of which may be initiated as
and when advised by OGRA.

Way forward Key Monitoring Indicators (KMIs) - Weightage
Key Monitoring Indicators Beta (ß)
S.No. Strategy Key Monitoring Indicators (KMIs) Weightage %
1 Identification of UFG prone areas (at least 10 areas per region) 3.0%
2 Segmentation of UFG Prone Areas & Installation of Check Meters for reconciliation 3.0%
Reconciliation of Check meters Vs CMS Readings on monthly Basis of such Segregated /

3 Segmented Areas and identification of the cause of UFG which may include pilferage, line leakages,
5.0%
measurement errors and corrective measures taken thereafter indicating reduction in UFG due to
the exercise carried out
For new areas, design of gas pipeline network may be made in such a way that the system
4 segregation is possible and check meter can be installed for reconciliation for better system visibility. 3.0%
Similar exercise, as indicated at 3 above, to be carried out on such systems.
Inspection and rectification of all industrial consumer meters/ CMS's across the network once every
5 Increased 2.0%
month (along with reconciliation, seals verification & and by pass checking).
Network
Visibility Inspection and rectification of all commercial consumer meters/CMS's over the network once every
6 2.0%
three (3) months or Quarterly - (As above)
Number of defective Industrial meters replaced as a percentage of total defective Industrial meters
7 2.0%
reported/notified per annum
Number of defective Commercial meters replaced as a percentage of total defective Commercial
8 2.0%
meters reported/notified per annum
Number of defective Domestic meters replaced as a percentage of total defective Domestic meters
9 4.0%
reported/notified per annum
Industrial meters replaced as a percentage of total Industrial meters qualifying scheduled
10 2.0%
replacement criteria
Commercial meters replaced as a percentage of total Commercial meters qualifying scheduled
11 3.0%


Domestic meters replaced as a percentage of total Domestic meters qualifying scheduled
12 Increased 4.0%
Network
The company shall carry out an exercise by testing a batch of minimum billed replaced meters to
Visibility
ascertain the actual minimum billing cases vs defective meters and shall subsequently make all
13 (Cont.) 5.0%
efforts to reduce the percentage in minimum billed consumers w.r.t. present of 25% SSGCL,
SNGPL 32%
Length of the underground distribution network replaced (KMs) as a % of total company’s annual
14 6.0%
network replacement target
Reduce present level of leak rate from 2.2 & 4.9 underground leaks/km in case of SNGPL & SSGC
15 7.0%
Network gradually to less than 1 leak/km in 5 years
Rehabilitation
Inspection & Survey twenty (20) % total Domestic connections annually and rectification of detected
16 3.0%
aboveground leak connections
Number of CP stations installed/refurbished as a %age of CP stations selected for
17 3.0%
installation/renovation
No. of disconnections in respect of theft as a % of total consumer base of the period along with the
18 3.0%
pilfered volume detected and recovery achieved
Re-inspection of 100% disconnected industrial consumers quarterly. Service line to be removed in
19 2.0%
accordance with Performance and Service Standard
Theft Control - Re-inspection of 50% disconnected commercial consumers by annually. Service line to be removed
20 2.0%
Registered in all cases
Re-inspection of 20% disconnected domestic consumers annually. Service line to be removed in all
21 2.0%
cases
Improvement in detection of No. of theft cases w.r.t. present of <1% of consumer base along with
22 4.0%
pilfered volume detected and recovery initiated/achieved

23 Number of FIR's registered against the number of cases detected 5.0%

Theft Control – Number of criminal suits filed
24 3.0%
Non-registered
25 Number of recovery suits filed 3.0%
26 Number of training hours per employee per year 1.0%

27
Innovation / New projects to improve cost effective construction, maintenance, emergency repairs
2.0%
Research & & efficiency
28 Development Identification of higher UFG regions & progress on UFG reduction through a Reward/Penalty
2.0%
scheme for Regional Management and relevant staff
29 Number of knowledge sharing meetings/ joint sessions attended/ organized during the period. 1.0%
Up gradation of Improvement in meter testing workshop carried out as per the required international standards.
30 metering Certification / affiliation with a relevant international forum who shall verify the facility on regular 5.0%
workshop intervals
Compliance All performance and Service Standard to be complied which are already in place and communicated
with the to gas companies. It will require the companies to promptly respond to gas emergencies, leakages,
31 "performance meter replacement and low pressure complaints, proper backfilling, adherence to contractual 6.0%
and Service pressure, timely removal of service lines etc. Audit of which may be initiated as and when advised
Standard" by OGRA.
Total % 100%

Annexure
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of the KPMG network of independent member firms affiliated with KPMG International
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circumstances of any particular individual or entity. Although we endeavour to provide
accurate and timely information, there can be no guarantee that such information is accurate
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KPMG Taseer Hadi & Co.

Oil & Gas Regulatory

Final Report – 07 July 2017

Risk Consulting | Karachi office

Final – Unaccounted for Gas (UFG) study. Partner

Report Sections Scope Elements

Section 3 – Way forward

Document Classification: KPMG Confidential

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Section I – Background and Situational Assessment 19

UFG Definition, Calculation and Methodology 25

UFG Contributing factors 30

Impact Analysis of UFG 56

Conclusion to Situational Assessment 61

Section II – Our Recommendations 66

Section III – Way forward 77

coupled with vulnerable supply management, demographical 04 05 06 07 08 09 10 11 12 13 14 15

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43 40 37 the licensee to its consumers (gas sold); and

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received and dispatched for a particular network segment.

contributing factors based on assumptions and estimates.

atmosphere from within a contributing towards UFG

of minimum billed and Mechanical faults

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 Gathering of relevant international better practices

 A rationalized UFG study report, outlining international

better practices, Incremental Improvement(reduction) in

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Use & Circulation of report

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Network Size (KMs)

Network Size (KMs)

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Accounting Treatment for UFG 521,533 — 464,304

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Total %age Cases /

Source: SNGPL Reported Information

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Document Classification: KPMG Confidential

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2013 692,966 1,070,079 2011 - 6,883