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Thursday March 28, 2024

RLNG tariff to go up, putting burden on end consumers

ISLAMABAD: The margins of gas companies, importing agency on re-gasified LNG (RLNG) has not only further been increased making the imported products costlier than furnace oil but the government has also lifted its price close to the price of diesel adding three more factors of the gas exchange loss, pay

By our correspondents
April 27, 2015
ISLAMABAD: The margins of gas companies, importing agency on re-gasified LNG (RLNG) has not only further been increased making the imported products costlier than furnace oil but the government has also lifted its price close to the price of diesel adding three more factors of the gas exchange loss, pay and take penalty loss and revenue loss in the price of the product.
The new factors will help alarmingly jack up the price of imported products close to the costly diesel negating the claims of the government that power generation based on RLNG will be much cheaper.
The exchange of RLNG with local gas will ensure more local gas supply to end consumers, but that additional gas will be included in the Unaccounted For Gas (UFG). ‘Pay and take penalty’ clause means that government fails to utilise the imported gas, or in case the LNG vessel is not used for country consumption, the loss to the LNG carrier will be borne by the masses and revenue loss means if the private companies or power sector fails to consume the RLNG or in case some of RLNG is, somehow, used by any consumer due to any fault, the loss will be recovered from the end consumers, through tariff.
As per the official document arranged from the Ministry of Petroleum and Natural Resources, the Ogra has determined the price of RLNG to end consumers such as power sector and, fertilizers at $14.18 per MMBTU, but without the GST and three new factors of the gas exchange loss, pay and take and pay penalty loss and revenue loss and if all are included, then the RLNG price will surge up to close to over $18 per MMBTU. The cost of furnace oil in terms of MMBTU stands at 13.10 percent showing that the RLNG’s cost is much higher.
The cost of diesel stands at 19.80 per MMBTU whereas the cost of RLNG, if the impact of the three new factors is included, stands at over $18 per MMBTU. This means that the costly RLNG will replace diesel with less advantage and it will not replace the furnace oil being used in power sector as RLNG price is much higher than furnace oil after three factors and GST are included.
The government has basically taken the intuitive to import LNG to ensure the electricity availability at cheaper rates and bring down the cost of doing business, but under the current scenario, the objective to import LNG has virtually evaporated.
The gas companies which were on the verge of economic collapse have managed to maximise monetary advantage out of the RLNG to get out of the economic morass they are facing. It has inflicted mammoth loss to the basic spirit and objective of the Nawaz government’s project to import LNG.
The huge increase in RLNG cost has factually increased the chances to make the project a complete fiasco. According to the official documents available with The News, the DG Gas on a letter written on April 21 to Ogra disclosed that the imported cost of LNG stands at $8.52 per MMBTU on which LNG terminal services charges stands at $1.46 per MMBTU. $8.52 land price of LNG per MMBTU is too much as on April 15, it was available in open market at $6.9 per MMBTU, so that land cost as mentioned in the letter of DG is questionable.
The Port Qasim charges stand at $1 million per cargo (48 cents per MMBT). Pakistan State Oil which is at loss on account of circular debt has increased its margin to 4 (34 cents per MMBTU) percent from 3 percent. Likewise, FED, Sindh Tax and withholding tax have been levied by 1-1.5 percent. On top of that SSGC and SNGPL will equally but separately take the administrative changes of 5 percent per dollar (34 cents per dollar). In addition, SSGC will take transmission charges of 28 cents per MMBTU and SNGPL 52 cents per MMBTU.
Top officials of the SNGPL have managed to convince the government to fix the new price of those assets which were deprecated to zero 10 years ago and if it is materialised, it will cause huge increase in the RLNG price that will be affecting consumers of CNG, fertilizers and power sector.
The SNGPL will also charge from the CNG and fertilizer sector for 11.50 UFG in the tariff of RLNG. In case it manages to include the exorbitant volume of UFG in the tariff, the spirit behind the whole idea of involving private sector in importing LNG will die down as the final tariff of RLNG will surge to the level where it will not be economically sustainable for them to continue their business and provide the products to their consumers at affordable prices.
SNGPL is not willing to give the 100 percent profit to the national exchequer knowing the fact that it has not laid down the new gas transmission and distribution network for provision of gas to the CNG and fertilizer sector as it will use the old gas distribution system.
Though determination of the UFG is the domain of Ogra, the gas utilities want to charge the maximum UFG from the LNG consumers arguing Ogra has nothing to do with the UFG issue when it comes to private consumers of LNG.