Summary sent to CCE for new gas tariff regime

ISLAMABAD: Under the gas sector reforms, the government has ultimately made its mind to introduce new gas tariff regime and unbundle the transmission and distribution pipelines of the Sui Northern Gas Company (SNGPL) and Sui Southern Gas Company (SSGC). The Cabinet Committee on Energy (CCE) is going to take up the summary for approval sent by Petroleum Division. Work on gas sector reforms has been underway since long with the help of the World Bank. Services of international consultants were hired who undertook consultation processes with all stakeholders — gas companies and the provinces. Talking to The News, Nadeem Babar, Special Assistant to PM on Petroleum (SAPM), confirmed the summary had been dispatched to the CCE to reduce losses and increase efficiency in the system. According to the summary, an independent National Gas Transmission Company (NGTC) would be formed that would operate as a common carrier for the existing or newly-formed gas distribution companies under Third Party Access rules promulgated by OGRA. However, the company would not be involved in the purchase or sale of gas, and its sole mandate would be to transport gas. Multiple gas distribution companies would be created under unified principles by both Sui Northern and Sui Southern within their areas of jurisdiction for operations of smaller business units or distribution companies. The companies would come into being on technical and economical basis, including population, network density, gas demand, workload, management and efficiency for the sustainability of new gas distribution companies. The government is already working out a mechanism of weighted average sale price equalization, or it would develop any other suitable regime for gas sale pricing, and the same would be implemented simultaneously.

The summary noted that the consumers are accustomed to lower gas prices, and unwilling to pay the delivered cost of LNG, which has created a significant cost mismatch for the gas companies.

The usage of import RLNG has increased in the country because of massive depletion of system gas production in the country. The power sector has not taken the expected volumes of LNG and the export and zero-rated industry is not paying the full cost of the LNG.

LNG is being diverted to domestic users paying lower tariffs due to which the cost-revenue mismatch for the gas companies is growing wider. On this particular issue, the SAPM said the government would have to pass the Parliament Act to address this issue as OGRA treated the LNG as petroleum product, not the gas, and because of this the cost of LNG diverted to the domestic sector in the winter season could not be recovered.

So far RLNG of Rs74 billion has been used by domestic consumers. The SAPM said it could be recovered if OGRA imposed a charge on domestic consumers, while the remaining would be recovered from the RLNG consumers such as CNG, industrial, power and fertilizer sectors.

However, ideally it could be addressed through an act of Parliament under which RLNG would be declared as gas product.

Article 158 of the Constitution provides the precedence to the gas producing province over other parts of the country in use of gas.

The gas producing provinces are now demanding uninterrupted supplies on the basis of surplus production.

The growing gas demand and depleting indigenous gas production is creating an ever-widening demand-supply gap. To fill the gap, reliance on imported gas (RLNG) has increased and at present public sector companies have back-to-back, take-or-pay contracts for sustaining LNG import supply chain. The Petroleum Division wants the new tariff based on a weighted average cost of gas (WACOG) which is being opposed by Sindh, KPK and Balochistan.