The Economic Coordination Committee (ECC) of the cabinet, which is scheduled to meet today (Tuesday), is going to take up the proposal for revising oil prices on a fortnightly basis from the current monthly basis in the wake of a continuous rise in the international crude market.
The committee is also expected to give the go-ahead to the revision in wellhead gas pricing formula, which will pave the way for injection of 200 million cubic feet per day (mmcfd) of liquefied petroleum gas (LPG) air mix into the system.
The petroleum ministry has proposed to the ECC to restore the fortnightly oil pricing mechanism to shield refineries from losses caused by frequent fluctuating global crude oil prices.
Earlier, Attock Refinery Limited (ARL) had proposed to the government to restore the fortnightly oil pricing mechanism.
“Owing to different pricing periods for crude oil and products of refineries, uniformity needs to be established by restoring the fortnightly pricing mechanism instead of the current monthly revision to save the refineries from adverse impact due to this anomaly,” ARL said in a proposal to the petroleum ministry.
ARL Chief Executive Officer (CEO) Adil Khattak told The Express Tribune that the government set oil prices on a monthly basis but frequent changes in international crude prices eroded the margin of oil refineries. “Therefore, we proposed to the government to restore the fortnightly oil pricing mechanism,” he said.
Gas prices
The petroleum ministry has also proposed a revision in the gas pricing formula. “If the revised gas pricing formula is approved, gas prices will go up by over 29 per cent,” a government official said.
According to the proposed guidelines of the ministry, the Oil and Gas Regulatory Authority (Ogra) will be allowed to include the cost of LPG air mix (gas mixed with air) in the uniform cost of gas in order to compute the weighted average cost.
The ministry has worked out a comprehensive plan that shows an increase in wellhead gas prices after injection of LPG air mix into the system.
The weighted average cost of gas is expected to increase from Rs308.93 per million British thermal units (mmbtu) to Rs313.79 per mmbtu, an increase of 1.57 per cent if 10 mmcfd of LPG air mix is added.
The weighted average cost will rise by 7.73 per cent to Rs332.66 per mmbtu in case of addition of 50 mmcfd of LPG air mix and move higher by 15.21 per cent to Rs356.94 per mmbtu if 100 mmcfd is added to the system. The cost will go up by 29.49 per cent to Rs400.05 per mmbtu in case 200 mmcfd of LPG air mix is injected. The ECC had approved policy guidelines on December 26, 2007 relating to LPG air mix, compressed natural gas (CNG) and liquefied natural gas (LNG) distribution projects undertaken by Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC), which were issued by Ogra.
Under these guidelines, gas prices for LPG air mix and natural gas were different. However, under the new proposed guidelines, SNGPL and SSGC will be able to charge a rate of return equal to the 17.5% rate of return for their gas operations.
Currently, SSGC is supplying LPG air mix to Gwadar (Balochistan), Noshki (Balochistan) and Kot Ghulam Muhammad (Sindh).
Published in The Express Tribune, March 13th, 2012.
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