ISLAMABAD : The Auditor General of Pakistan (AGP) has observed the cost of unjustified RLNG diversion was incorporated into gas tariffs and fixed charges were collected from consumers resulting in an undue financial burden on gas consumers.
This observation has been made by the AGP, in its report on audit of gas companies for the audit year 2025-26, which has been tabled before the National Assembly.
Audit has stated that persistent decline in indigenous gas production, along with rapid reserve depletion and the lack of significant new discoveries, has significantly widened the gap between natural gas demand and supply. To address the acute gas shortage, particularly during winter months, the Federal Government decided in 2018 to divert imported Re-gasified Liquefied Natural Gas (RLNG), which had primarily been supplied to the power sector since 2015, to the domestic and commercial sectors. Accordingly, the Economic Coordination Committee (ECC) on November 27, 2018, approved the injection of RLNG by M/s SNGPL for domestic and commercial consumption during winter 2018-19.
RLNG is significantly more expensive than indigenous natural gas and is governed by a separate tariff regime. Despite this, RLNG was supplied to domestic and commercial consumers at indigenous gas tariffs, creating a substantial differential cost. Initially, this differential was managed through seasonal swapping: RLNG was supplied to domestic consumers in winter at indigenous gas tariffs, while indigenous gas was supplied to the power sector in summer at RLNG tariffs, with both differentials adjusted against each other.
Over time, declining indigenous gas supplies and increasing winter demand led to higher RLNG diversion volumes, making the seasonal swapping mechanism inadequate. Consequently, the ECC, on July 3, 2020, decided that OGRA should provisionally allow recovery of RLNG shortfall based on month-wise actual diversion volumes, subject to verification.
SNGPL diverted RLNG to domestic and commercial sectors from November 2018 to October 2023, claiming total diverted volumes of 188,426,487 MMBTUs. The company submitted subsidy claims amounting to Rs 370,361 million to the Petroleum Division / DG (Gas). Against these claims, the Federal Government released Rs 116,058 million through federal budgets and unbudgeted releases, leaving an outstanding balance of Rs 254,303 million as claimed by SNGPL.
In October 2023, the ECC, on October 23, 2023, directed OGRA to include the cost of RLNG diversion in the revenue
requirement determination of Sui companies to enable appropriate pricing and cost recovery. OGRA implemented this decision and incorporated RLNG diversion costs into the Final Revenue Requirement for FYs 2023-24 and 2024- 25.
Audit is of the view that any inefficiencies or irregularities in the subsidization of RLNG diversion can adversely affect energy affordability and sustainability. To address this, the Government of Pakistan (GoP) paid the differential cost of RLNG diversion through subsidies to help reduce the gas circular debt. In addition, the government implemented cost-recovery measures by imposing fixed charges and incorporating the cost of RLNG diversion into gas bills.
The audit team conducted field audit activity at DG (Gas) office and relevant records / details were also obtained from SNGPL. The methodology of thematic audit involved review and analysis of relevant policies, Cabinet / ECC decisions, budgetary documents, subsidy claims and regulatory determinations governing RLNG pricing and its diversion to domestic and commercial sectors.
The audit conducted a review of the verification of actual volumes of RLNG diverted to domestic and commercial sectors through a third-party consultant appointed by OGRA, as well as the mechanism for pre-audit of SNGPL’s claims. Meetings were held with officials of Petroleum Division and gas utilities companies to obtain explanations and supporting evidence.
Audit analysis
Unjustified diversion of RLNG in summer months despite availability of sufficient indigenous gas – Rs 100,906.638 million
According to Economic Coordination Committee (ECC) decision of November 27, 2018, ECC of the Cabinet considered the summary dated November 19, 2018 during winter of FY 2018-19 and approved that SNGPL was allowed to inject RLNG volumes for consumption by domestic and commercial consumers, provided OGRA allows volumetric adjustment and financial impact in line with ECC decision dated May 11, 2018. According to ECC decision of October 23, 2023, OGRA may include the cost of RLNG diversion in the determination of Revenue Requirement of Sui companies. Further, Federal
Budgets for the FY 2022-23, 2023-24, and 2024-25 under grant 043 Fuel and Energy 043202 – IB5503 Subsidy to Domestic Consumers through SNGPL (RLNG) allocated budget grants of Rs 6,250 million, Rs 29,000 million and Rs 10,000 million, respectively.
During thematic audit of Subsidy of differential amount for RLNG diversion to domestic & commercial sectors at DG (Gas) office for the FYs 2021-22 to 2024-25, it was observed that SNGPL diverted RLNG during the summer months in 15 cases, even though sufficient indigenous gas was available as per the demand & supply data and indigenous gas supply exceeded the demand of domestic and commercial consumers. Further, in 13 cases, the supply of indigenous gas exceeded total demand across all consumer categories, making diversion of RLNG to any category of system or indigenous gas unjustified.
This resulted in submission of unjustified subsidy claim of Rs 73,028 million by SNGPL. Further, OGRA started inclusion of RLNG diversion volumes in the cost of gas for the Final Revenue Requirement of SNGPL for FYs 2023-24 and 2024-25 which also included the RLNG diverted during the summer months despite sufficient indigenous gas supply.
Audit is of the view that non-compliance with ECC decisions led to RLNG diversion during the summer months, despite sufficient indigenous gas for domestic and commercial consumers, resulting in an unjustified subsidy claim of Rs 73,028 million.
The matter was reported to the management on December 12, 2025. The management in its reply dated January 14, 2026 stated that RLNG diversion was only 1%–18% of total gas volumes. RLNG diversions were government approved under ECC decisions and implemented through OGRA’s approved mechanisms. Audit contended that Government approved diversion of RLNG for domestic and commercial consumers in winter months whereas SNGPL diverted RLNG to other category of consumers in summer months despite availability of sufficient supply of gas to meet with the demand of domestic and commercial consumers. Further, funds were released through Federal Budgets only for RLNG diverted to domestic and commercial consumers.
Audit has recommended that SNGPL’s summer subsidy claims may not be entertained due to sufficient indigenous gas supply for domestic and commercial consumers, and that RLNG diversion claims be bifurcated, disallowing diversion to other consumers.
Irregularities in release of subsidy on account of RLNG diversion
According to the ECC decision of November 27, 2018, M/s SNGPL was allowed to inject RLNG volumes for consumption by domestic and commercial consumers during winter. Further, according to the ECC decision of July 3, 2020, the ECC decided that OGRA should provisionally allow recovery of the RLNG shortfall, considering the month-wise actual RLNG volumes diverted to the domestic and commercial sectors by SNGPL, subject to verification of volumes supplied to domestic and commercial consumers. Moreover, the Federal Budgets for FY 2022-23 and 2023-24 under grant 043 Fuel and Energy – 043202 – IB5503 Subsidy to Domestic Consumers through SNGPL (RLNG) allocated budget grants of Rs 6,250 million and Rs 29,000 million respectively.
During thematic audit for the FYs 2021-22 to 2024-25, it was observed that Petroleum Division / DG (Gas) released a subsidy of Rs 116,058 million from November 2018 to October 2023, against budget grants of Rs 35,250 million and a supplementary grant of Rs 50,000 million. Further, OGRA included RLNG diversion volumes in the cost of gas for the Final Revenue Requirement of SNGPL for the FYs 2023-24 and 2024-25. Following irregularities were observed: (i) SNGPL’s Annual Reports for 2023-24 and 2024-25 disclosed claims of Rs 370,361 million as receivables from the GoP for RLNG diverted to system gas consumers. However, these claims included RLNG diverted to all system consumers, whereas subsidies were only approved for domestic and commercial consumers ;(ii) Petroleum Division / DG (Gas) paid an unbudgeted subsidy of Rs 30,808 million for RLNG diversion to the domestic and commercial sectors ; and (iii) Petroleum Division / DG (Gas) did not conduct a pre-audit of all claims filed by SNGPL up to October, 2023. Further, OGRA conducted verification of RLNG volumes diverted up to FY 2019-20 and no requisite audit / verification of RLNG diversion volume was conducted of the claims for the period FY 2020-21 to 2024-25.
Audit is of the view that non-compliance with ECC decisions and Federal Budgets led to inadmissible subsidy claims for RLNG diversion to other categories of consumers than domestic / commercial consumers. Additionally, inadequate budgeting and weak financial controls resulted in an unbudgeted subsidy of Rs 30,808 million up to October, 2023 and non-conducting of pre -audit and proper verification of SNGPL’s claims.
The matter was reported to the management on December 12, 2025. The management in its replies dated January 14, 2026 stated that subsidies of Rs116,058 million were released against approved budgetary allocations and a supplementary grant, based on SNGPL’s verified claims. Actual RLNG diversion costs incurred by SNGPL were much higher than subsidies released.
Audit contended that there was budgetary allocations of Rs 85,250 million and OGRA conducted verification of RLNG volume diverted up to the FY 2019-20 only. Further, SNGPL’s claimed subsidy for RLNG diversion to all system gas consumers whereas only domestic and commercial consumers were entitled for the subject subsidy.
Audit has recommended Petroleum Division to conduct verification of all subsidy claims as per ECC decision dated July 3, 2020, with a consumer-wise breakdown of RLNG diversion. Moreover, subsidy claims should only be entertained for RLNG diverted to domestic and commercial consumers, and future subsidies be limited to the approved budget and entertained after third party audit or verification.
Collection of monthly fixed charges through gas billing by SNGPL and non-framing of any mechanism for adjustment by Petroleum Division
According to DG (Gas) letter of November 7, 2023, conveying the ECC decision of October 30, 2023, the gas price revision shall take effect prospectively from November 1, 2023. The document contained the proposed sales prices / tariffs for domestic (residential) consumers, including fixed monthly charges of Rs 400 for protected consumers and Rs 1,000 for non protected consumers up to gas consumption of 1.5 hm³, and Rs 2,000 for gas consumption above 1.5 hm³.
During thematic audit for the FYs 2021-22 to 2024-25, it was observed that DG (Gas) submitted a summary related to gas sales prices, including monthly fixed charges, to the ECC of the Cabinet, which was approved on October 30, 2023. However, the purpose and utilization of these fixed charges were not mentioned in the summary. As a result, SNGPL management collected a significant amount of Rs 117,379.418 million from consumers. Petroleum Division / DG (Gas) did not establish any mechanism for adjusting the large amounts collected as fixed charges. As a result, SNGPL management neither offered this significant income to OGRA for inclusion in the revenue requirement, nor was the amount adjusted against the previous years’ revenue shortfall.
Audit is of the view that collection of fixed charges through gas bills imposed an additional burden on gas consumers. Furthermore, huge amount collected by SNGPL remained unadjusted because Petroleum Division / DG (Gas) failed to establish a mechanism for its adjustment.
The matter was reported to the management on December 12, 2025. The management in its reply dated January 14, 2026 stated that gas tariff structure with protected, non-protected categories and fixed charges was similar to the power sector tariff system. Fixed charges were introduced with government approval to ensure cost recovery and OGRA treated fixed charges as operating income included in revenues. Audit contented that the management did not provide any proof of claimed treatment in FRRs because OGRA’s determined FRRs did not reflect the same and other operating income of Rs 22,487 million and Rs 23,507 million were determined by OGRA in the FRRs for the FY 2023- 24 and 2024-25 without including fixed charges.
Audit has recommended to ensure the adjustment of fixed charges against revenue shortfall determined by OGRA or against outstanding claims related to RLNG diversion.
Non-formulation of policy for recouping cumulative revenue shortfall of SNGPL as determined by OGRA
According to Para 14.2 of Final Revenue Requirement of SNGPL for FY 2023-24 finalized on March 28, 2025, OGRA decided to refer the matter regarding previous years’ shortfall to Federal Government for devising an appropriate policy so that revenue shortfall, as determined by OGRA, is met.
During thematic audit for the FYs 2021-22 to 2024-25, it was observed that Petroleum Division / DG (Gas) did not frame any policy for retrieval of cumulative revenue shortfall of SNGPL from Federal Government, which was determined by OGRA to Rs 529,345 million as of March 28, 2025. Further, DG (Gas) failed to resolve the issue of ever-increasing revenue shortfall of SNGPL from FYs 2018-19 to 2024-25, despite repeated directives from OGRA.
Audit is of the view that weak pursuance and follow-up by Petroleum Division / DG (Gas) resulted in non-implementation of OGRA’s directives regarding policy formulation for recovery of SNGPL’s revenue shortfall.
The matter was reported to the management on December 12, 2025. The management in its replies dated January 14, 2026 stated that revision of consumer gas prices was solely the Federal Government’s authority under the OGRA Ordinance. Non-revision of prices and lack of subsidies caused tariff shortfalls, which OGRA adjusted and later resumed including after price revisions from November 2024 when revenue cushion became available. Audit contended that OGRA refused the request of gas companies regarding inclusion of revenue shortfall in the yearly revenue requirement and referred the matter to the Federal Government but Petroleum Division / DG Gas did not frame any policy / mechanism for recovery of revenue shortfall of SNGPL.
In response to the acute gas shortage and the increased demand from domestic and commercial consumers during the winter, the Federal Government allowed SNGPL to divert RLNG starting in November 2018. This initiative, involving a subsidy worth billions of rupees, was undertaken without proper planning or an execution methodology. Critical measures such as estimating the volume to be diverted, budgeting, billing and measurement methods, payment mechanisms, and pre-audits or verification of the actual volume diverted and claims were not implemented.
SNGPL began RLNG diversion in November 2018, which continues to date. SNGPL claimed differential amounts for RLNG diversion budgeting led to an unbudgeted subsidy of Rs 20,808 million was granted, with subsidies released without conducting proper pre-audits or verifications. to system gas consumers, amounting to Rs 370,361 million (without consumer-wise bifurcation). In response, the Government released Rs 116,058 million, leaving an outstanding balance of Rs 254,303 million. Despite ECC decisions, SNGPL diverted RLNG to all system gas consumers throughout the year, even though RLNG diversion was only permitted for domestic and commercial consumers during the winter months. Additionally, weak financial controls and improper budgeting led to an unbudgeted subsidy of Rs 20,808 million was granted, with subsidies released without conducting proper pre-audits or verifications.
Pursuant to ECC decision dated October 23, 2023, OGRA included RLNG diversion volume in the Cost of Gas, noting that the diversion volume had steadily increased over the years. OGRA advised SNGPL to address this issue with the Ministry of Energy (Petroleum Division) / Federal Government for better forecasting and to minimize its impact on consumers. However, this advice has yet to be implemented.
Federal Government also approved the charging of fixed charges through gas bills, in addition to the gas tariff. However, Petroleum Division has yet to establish a mechanism for adjusting the collected amount of Rs 117,379.416 million. As a result, SNGPL has retained this large sum. Moreover, the issue of SNGPL’s increasing revenue shortfall from 2018-19 to 2024-25 has not been addressed with the Government, despite repeated directives from OGRA.
The Audit said that cost of unjustified RLNG diversion was incorporated into gas tariffs and fixed charges were collected from consumers resulting in an undue financial burden on gas consumers. Ends
