RLNG circular debt can soar to Rs190 bn

ISLAMABAD: The circular debt on account of perpetual injection of costly RLNG into the domestic sector in the last three years has surged to Rs104 billion and if this time the government again provides RLNG to domestic sector in Punjab and KPK for three months in the coming winter season, it will alarmingly swell to Rs190 billion.

“The diversion of RLNG to domestic sector would be a government decision in the coming winter season, which is why the Petroleum Division is going to ask the Finance Division to provide relief of Rs50 billion to PLL and PSO.

Otherwise, they will go bankrupt because of the zero recovery of RLNG dues from the domestic sector,” one of the top officials at the Energy Ministry told The News.

The diversion of RLNG was started by the government for political considerations in winters of the years 2018-19, 2019-20, 2020-21, causing the buildup of the circular debt of Rs104 billion. If the government continues to inject it in the coming winter season, circular debt in RLNG will worsen and go up to Rs190 billion.

The cost of the RLNG has not so far been recovered owing to which the state-owned entities i.e. Pakistan LNG Limited (PLL) and Pakistan State Oil (PSO) have started feeling the heat and they are running short of liquidity because of non recovery of the cost of imported product diverted to the domestic sector.

For the current month of the season, the current RLNG price in the country stands at $15.78 per MMBTU. And if the price of spot cargo ranges between $30-35 per MMBTU in the winter season, then the PLL is estimated to sustain another dent of Rs90 billion.

The official said that the RLNG has been defined as an oil product not gas and for OGRA, it is not possible to recover the cost of RLNG from domestic consumers.

The government is going to do some legislation on this front and will try to introduce the new gas price mechanism based on WACOC (weighted average cost of capital) that will help receive the cost of RLNG. The cost of will be determined after the RLNG is blended with natural gas cost. The cost of local gas hovers around $4 per MMBTU whereas the RLNG cost has been determined for the month of October, 2021 at $15.78 per MMBTU.

The official said when the RLNG was started being imported in the country, the government had given the understanding that the price of RLNG will be ring fenced, but the government in the last three years has been diverting the RLNG to domestic sector as the local gas production has gone down to 2.8 bcfd and the imported gas stands at 1.2 bcfd.

The 2.8 bcfd gas is not enough to meet the demand of the domestic sector, which increases in the winter season manifold. This is why the government diverts the RLNG to domestic consumers to avoid the backlash from masses.