Govt set to deregulate RLNG prices putting Ogra’s role to rest

Petroleum Minister Abbasi says internal debate over RLNG deregulation kicked off as Ogra not ready to show flexibility in rules

ISLAMABAD: In a paradigm shift, the government has made its mind to deregulate the RLNG prices within the country putting aside the role of Oil and Gas Regulatory Authority (Ogra) and to this effect the brainstorming of top mandarins in the Ministry of Petroleum and Natural Resources is underway.

The regulator has emerged as a stumbling block in the way of determining the LNG prices as it has asked the government to first amend the existing laws and put in place legally trustworthy mechanism for its supply chain. This has forced the top mandarins of the ministry to deregulate the RLNG. 

Currently, the LNG prices are being regulated by Ogra that had determined provisional price of LNG on October 7, 2015 but this price was challenged for review by main stakeholders that include PSO, SSGCL and SNGPL. The regulator held two hearings in Karachi and Lahore respectively. But later on it told to the ministry that there are some legal hitches in the way of LNG price determination.

When contacted, Federal Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi confirmed that internal debate is on about deregulating RLNG between the ministry and its concerned attached departments and when the brainstorming takes shape of concrete proposal, the ministry is to start working on a summary on RLNG deregulation that will be pitched in  the meeting of Economic Coordination Committee for final approval. 

The minister said that RLNG will be dealt based on market prices arguing LPG is also a deregulated product. The minister came down heavily on the regulator arguing that one year has elapsed, but the Ogra has failed to determine the RLNG prices. Rather, it is asking for some explanations about the laws dealing with the petroleum products. 

“We have not opened a school for adults in the ministry,” he said. “The power sector always asks for the LNG price, but we had to refer to the provincial LNG price that was determined by Nepra on October 7, 2015.”

One of the top officials of the ministry said there is no flexibility in the stance of the regulator about the margin of PSO, SSGC and SNGPL which has really put the whole system in jeopardy. The Ogra has 150 officials and the number is more than that of the ministry but the regulator’s output is highly questionable, he said. For Ogra, LNG Services Agreement (LSA) is too much complicated and the 66 cents per MMPTU levelised LNG handling fee of the terminal is something that Ogra has not so far comprehended, he said. When the LNG supply system gets stabilised from the month of March, 2016, even then tolling fee will continue to oscillate between 62 to 66 cents per MMBTU. 

“There are some things that Ogra officials need to understand and we almost spend the two-third of our time in making Ogra officials understand, but still they are unable to comprehend,” one of the officials dealing with the subject told The News. In the LSA, SSGC is bound to pay $2,72000 as capacity charges to the LNG terminal company and when less LNG is imported, the tolling fee gets increased to pay the capacity charges and when the LNG supply increases, the tolling decreases, he said. 

From the month of March, three LNG carriers will be imported from Qatar under government-to-government deal and one LNG ship will be provided in every month by Gunvor company. Because of four LNG consignments in a month, the tolling fee will reduce to 63 cents per MMBTU. However, Ogra officials are still unknown of the meaning of levelized tariff of terminal, he alleged. PSO and Qatargas company will formally sign $16 billion LNG deal for 15 years on February 11 in Doha in the presence of Prime Minister Nawaz Sharif, he said.

When the attention of the officials of the ministry was drawn towards the letter of the Ogra mentioning some legal hitches in the way of approving the LNG price, they said that the for LNG consignments ( 3 from Qatar and one from Gunvor company), it will be ensured at 13.73 percent of the Brent from March onward, but even then the DES (delivery ex-ship) price will continue to be variable as the LNG volume of the ship may differ and its warfage can also differ. So the DES price is not a fixed one, but the regulator does not want to understand, they alleged.

They said that Ogra has fixed the PSO margin in the provisional LNG determination at 1.8 percent but PSO wants 4 percent. The official has fixed the margin of 0.5 percent for PSO out of 1.8 percent as the remaining 1.3 percent will go to national exchequer in the form of taxes. The officials said that 0.8% is spent on opening of L/Cs (letter of credit) for each LNG cargo and other expenditure of PSO is equally to 2 percent. However, the officials said that the minister had advised PSO not to seek margins in percentages, but get it fixed in cents. The official said that the re-gasifying charges are also variable, which will be hovering between 62 to 66 cents even if the LNG supply system gets stabilised.

They said that losses during the re-gasification of the product has been decided at 1 percent in the LNG service agreement between SSGC and LNG terminal company, but Ogra has fixed it at 0.75 percent. The officials said that transmission losses are fixed at 0.5 percent and distribution losses have gone up to 40 percent depending upon the place at the distribution system. In distribution system there are some places where in losses are over 11 percent, but at some places losses go up to 40 percent, they said. So it will be a difficult for Ogra to determine the UFG (losses) for specific places, they alleged. However, they said that RLNG consumers are supposed to be provided the product with full price which is why the government is pondering to deregulate RLNG prices.