LNG deal in a soup as Ogra slashes PSO’s margin

ISLAMABAD: The government is extremely upset about the provisional LNG sale price of $8.64 per MMBTU determined by the Ogra, as the PSO has expressed its inability to import the LNG with over 50 percent reduction in its margin.
The Ministry of Petroleum and Natural Resources is currently mulling over many options about how to neutralize the decision of the regulator.The ministry wants the regulator to review its decision under which the PSO’s margin has been slashed down from 4 percent to 1.82 percent.
The PSO’s inability to import LNG has not only virtually landed the whole LNG supply in trouble, but also slowed down the process to carve out sustainable pay mechanism by the power sector which is one of the main condition precedents (CPs) to be met prior to signing the LNG deal with Qatar for 15 years.
The ministry’s top mandarins are perturbed about the Ogra’s decision taken on October 7 which has sliced down the PSO’s margin and erased the administrative and services charges of both gas utilities.
The ministry has decided to either write to the regulator asking for review of its decision or the PSO and Sui Southern and Sui Northern will submit petitions to Ogra. Under the third option, the three entities might petition court against the regulator’s decision.
Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi said the PSO, Sui Southern and Sui Northern will appeal the regulator’s decision.He said the PSO was unable to import LNG with over 50 percent reduced margin adding that the entity had to take charges incurred while opening the letter of credit and in addition there are imperative charges which the entity has to pay.
So the margin of PSO, which has been determined by the Ogra, is not enough to cater to the expenses incurred on importing the product.He said out of 1.82 percent margin determined by the Ogra, the PSO will pay 1.5 percent as tax to the government after which its margin factually stood at 0.52 percent which was not justified.
Chairman Ogra Saeed Ahmad Khan said their decision was provisional and was announced to facilitate the government to initiate the process to recover bills from the power sector for the LNG it had used.
He said the decision would enable the government to carve out a sustainable payment mechanism so that it could enter into the LNG deal with Qatar under government to government arrangement.
He said gas companies had the right to go for review of the decision, but they could not be accommodated.He said the margins and charges they wanted to get were already being received as all were embedded in the prescribed gas prices.
“However, the PSO can also submit a petition to the Ogra seeking review of its decision on the margin. And we have to look at the rationale the PSO will market to Ogra during the public hearing. We have to decide after listening to counter arguments of other stakeholders and the margin of PSO can further go down if the said entity fails to plead with convincing argument,” said the Ogra chief.
However, the officials of the regulator were of view that the Ogra had determined the LNG sale price not under the Ogra Ordinance, but in the light of Petroleum Development Levy Act, as LNG was a petroleum product. So the said decision could not be alerted.
“However, the issue of margin can be looked into once the public hearing of petitions of stakeholders are submitted and admitted by the regulator.”He said gas entities also had reservations about the decision of PSO and they would also move again the decision.
It is pertinent to mention that prior to the announcement of provincial LNG sale price, the ministry wanted the Ogra to let the PSO charge 4 percent margin on RLNG arguing that it collects same volume of charges on import of fuel.
“Since LNG is a petroleum product, we allowed the PSO to charge 4 percent margins,” the minister had told The News while arguing the stance of the ministry just before the announcement of LNG price. However, Ogra showed defiance and reduced the margin of PSO to 1.8 percent from 4 percent.
The Ogra under the much-touted decision had also reduced the retainage of 3 percent to 0.75 percent and fixed LNG terminal handling at 66 cents per MMBTU. Before that the LNG terminal was charging $1.85 per MMBTU.