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July 1, 2020

Gas consumers may have to pay billions more

Top Story

July 1, 2020

ISLAMABAD: The gas consumers may have to pay billions more on account of Petroleum Division’s decision to inject the costly imported gas to domestic and commercial consumers.

Under the new scenario, the Petroleum Division has decided to recover from consumers of RLNG the huge loss of Rs73.848 billion for diverting the costly and ring fenced RLNG to domestic and commercial sectors in the last two winters season for 2018-19 and 2019-20. The sitting government injected the imported gas in the winter season. The RLNG consumers include industrial, power, CNG, fertilizer and cement sectors and the burden will be diverted to them for injecting the costly products to domestic and commercial consumers.

And to this effect ECC (Economic Coordination Committee) that meets today (July 1, 2020) is going to pitch for approval the summary on policy guidelines with respect to sales price of RLNG. The summary unfolds saying that Petroleum Division firmed up its proposals seeking ECC permission allowing Sui Northern to recover the RLNG revenue shortfall amounting to Rs73.848 billion through the monthly RLNG sale pricing from all RLNG consumers subject to conditions that include (i) OGRA will provisionally allow the recovery of RLNG revenue shortfall considering the month-wise actual RLNG volumes diverted in the domestic and commercial sector by SNGPL and any amount available in the deferral account would also be adjusted while actualizing the RLNG sale price; (ii) OGRA may create a specific head under the RLNG sale price for charging diversion cost in a staggered manner; (iii) Upon merger of PLTL and PLL, the revision in the margin in RLNG pricing being provided to these companies will be reviewed and would be considered to off-set the increase in the sale price of RLNG on account of diversion cost recovery; (iv) Upon amendment in OGRA Ordinance, 2002 for bringing RLNG in the WACOG (weighted average cost of gas), the balance RLNG revenue shortfall by the amendment is made, if any, would be recouped through revenue requirements in a staggered manner.

According to the summary, the Sui Northern has been compelled under the government policy to divert the costly product to domestic and commercial consumers to avert the backlash from the masses in the last two winters. However, from March 2020 till to date the costly RLNG is still being provided as the local gas production activities have dwindled on some gas fields because of Covid-19 pandemic.

The recovery of the huge amount of Sui Northern from domestic consumers is not possible as the tariff of this category of consumers is different and at lower side. However, the non-recovery of Rs73.848 billion has multiplied manifold the financial miseries of Sui Northern which has defaulted the payments of Pakistan State Oil (PSO) and Pakistan LNG Limited (PLL). "And because of non-payment by Sui Northern, the PSO has already defaulted in payments of the international LNG supplies twice in the recent past. And to this effect Petroleum Division has prepared a draft for ECC and circulated it with various economic ministries for their comments," the relevant officials told The News.

In the aftermath of Covid-19 pandemic, gas supply from some fields has dropped drastically compelling SNGPL to continue supplying RLNG to domestic and commercial consumers. The said differential is subject to the change based on actual volumes diverted in the winter and summer months and recouping of shortfall during the months when system gas has been sold as RLNG, Sui Northern will be required to present a proper case with data sheet before OGRA for validating its claims of RLNG diversions.

The Petroleum Division is of the view that the due to severity of weather during the past winter seasons, SNGPL was constrained to inject RLNG to domestic and commercial consumers which was in line with ECC’s approved policy guidelines. But the resultant tariff or RLNG revenue shortfall is now being compounded in the absence of recovery mechanism whereas under the RLNG ring-fenced pricing mechanism, recovery of RLNG related shortfall can only be made through monthly RLNG pricing.