RLNG consumers paid more for months, admit gas companies

ISLAMABAD: The gas companies have ultimately acknowledged that they have unjustifiably taking service (operational) charges from end RLNG consumers since March 26 as the disallowance of the cost of service in LNG prices by Ogra will not financially affect them.
This shocking disclosure has been made in the petition of Sui Northern Gas Pipeline Company Ltd. (SNGPL) submitted with Ogra seeking the increase in margins that the regulator in its historic provisional LNG sale price decision on October 7, 2017 completely erased, arguing the every kind of margins the said entities are taking are illegal.
According to the copy of petition available with The News, the SNGPL vividly acknowledged that the cost of service that it charged from the RLNG consumers in last six and half months was unjustified as the disallowance of the cost of service in LNG prices by Ogra will not financially affect the company.
The Ogra on October 7, 2015 determined the provisional RLNG sale price at $8.63372 per MMBTU without inclusion of GST (general sales tax) by slicing down the margin of Pakistan State Oil (PSO) to just 1.82 percent from 4 percent and doing away with the administrative and services charges of both gas utilities. The earlier RLNG price was at $12.50 per MMBTU for power and fertilizers sector and $12.85 per MMBTU for CNG sector.
Now SNGPL and SSGC have come to exhaust their legal right to challenge the Ogra decision by submitting the petitions seeking the restoration of administration charges, permission to charge from the LNG consumers (retail consumers) at gas distribution network the actual line losses and some increase in services charges. The Ogra is now going to hold public hearing here on Monday (today) in repose to the petitions of the gas companies. The regulator will first ensure the refund of the huge amounted minted by the gas companies in the name of service charges in the said public hearing.
However, the officials at Ogra seem not influenced by the arguments mentioned in the petition and to this effect, the regulator may not accommodate the demands of the gas companies except the rationalization of administrative charges. PSO is also upset on over 50 percent reduction in its margins out of LNG import from 4 percent to 1.82 percent.
The public hearing with regard to PSO margin may be held another day as formal petition from PSO has not yet been received, one of the Ogra officials told The News. The Ogra official said that both the companies had been involved in the double charging for the last 6 months and twelve days from the consumers as under the prescribed price of gas, they were already getting 17 percent rate of return on assets.
According to the copy of petition available with The News, mentioning about the service charges; the SNGPL acknowledged that the cost of service that it charged from the RLNG consumers in last six and half months is unjustified as the disallowance of the cost of service in LNG prices by Ogra will not financially affect the company.
However, the said gas company adopted a strange logic in favour of charging the cost of service saying as per the Generally Accepted Accounting Principles (GAAP), cost should be allocated to areas for which it was incurred.
The SNGPL pleaded its case on the ground arguing that as already indicated in our letter no. RA-LNG-028-15 dated September 03, 2015 that transmission and distribution cost was as per Actual Accounts for Financial Year 2014-15, in respect of Punjab was allocated to LNG consumers on the Punjab Volume. The same has also been decided by ECC in its decision no. NG (II)-12(62)/12 LNG-Interim dated September 29, 2012 in which it is clearly stated that the cost of RLNG will not be passed on to other consumers. That’s why the company will be amending its FRR (financial revenue requirement) petition for Financial Year 2014-15 based on this Ogra’s decision. The Sui Northern in the petition also pleaded that the gas internally consumed (GIC) should have been made part of LNG prices.
Highlighting its stance on administrative charges, the Sui Northern said that it is taking additional financial risk by transporting RLNG, which as compared to local natural gases is way more expensive. The company is exposed to take and pay risk in respect of supply of gas from Qatargas company or PSO due to non recognition of force majeure events of the gas company.
The petition says that Ogra is aware of the present financial crunch being faced by the company owing to the non issuance of FRR (financial revenue requirements) of previous years. In order for the company to bridge the financial gap, the company will have to arrange the finances, the cost of which is non-operating as per the present tariff regime.
In view of the above additional significant cost and the risk is involved in relation to the import and sale of the LNG having no access to previous revenue requirement mechanism. The gas company, therefore wants Ogra to allow Administrative Margin of $0.05 per MMBTU in the LNG price and treat it as non-operating income.
Mentioning unaccounted for gas component (UFG), the petition says that the Ogra in its LNG sale price determination has only account for UFG of transmission-based consumers. The price has not yet been notified keeping in view the retail consumers such as CNG and others.
It is once again requested that the price of LNG for relating networking be notified and UFG cost may please be allowed at actual UFG percentage since the same had already been agreed by Ogra pursuant to the Ogra natural Gas (regulated third party access) rules 2013. Also sale of RLNG to retail consumers is going to be a ring fenced transition while the cost of UFG of the same has to be borne by the respective consumers to which such supply is being made per policy. The petition also requests Ogra to issue RLNG price for CNG sector including the UFG for the same on actual basis.
However, the official in the regulator said that the UFG cannot be allowed more than that of 4.5 percent. He said that earlier Sui Northern was getting UFG of 11.50 percent from the retail consumers such as CNG sector which was unjustified as the third part access rules are suspended. And on top of that the Sui Northern has not entered into any agreement with CNG sector for charging UFG of 11.50 percent. “So the petition of Sui Northern to this effect carries no weight.”