Gas distribution companies: ECC dismisses call for margin collection on LNG supply

OGRA argues gas utilities are already receiving 17% return on assets.

ISLAMABAD:

The economic managers, while turning down a proposal, have not allowed gas transmission and distribution companies to collect a different type of margin in addition to the transportation fee following opposition from the Oil and Gas Regulatory Authority (Ogra) – the industry regulator.

Gas utilities – Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL) – were seeking a margin of five cents per million British thermal units (mmbtu) on imported liquefied natural gas (LNG) in addition to the transportation fee.

However, the regulator opposed it, arguing there was no provision in the licences of gas utilities that cleared the way for receiving the margin on the distribution of LNG.



Ogra pointed out that under a formula, gas companies were already permitted to collect 17.5% guaranteed rate of return on their assets, therefore, they could not be given the go-ahead to impose the margin.

With the passage of time, the gas pipeline network and other assets of the companies are expanding, leading to an increase in gas prices and shortages for the consumers.

“The government has set 28 cents per mmbtu as LNG transportation fee for SSGC and 58 cents per mmbtu for SNGPL,” an official aware of the developments said.

Talking to The Express Tribune, Petroleum and Natural Resources Minister Shahid Khaqan Abbasi elaborated that the transportation fee covered the margins and distribution charges for the gas utilities.

The petroleum ministry, in a summary sent to the Economic Coordination Committee (ECC), had proposed that 50% of transportation fee should be treated as non-operating income for both the gas companies. In this regard, relevant rules of Ogra are required to be amended.

However, a committee constituted by the ECC recommended that the cost of service (transmission and distribution) should be part of the operating income as it would not be expedient to collect the same under a ring-fenced arrangement as well as part of the revenue requirement.

Replying to a question, Petroleum Minister Abbasi said the ECC had yet to take a decision on the issue.

Officials argue that consumers are already paying 17.5% guaranteed rate of return and therefore, earnings through the transportation fee should be passed on to the consumers by making adjustments in prices.

The Planning Commission has also asked the petroleum ministry to give the justification for treating 50% of the fee as non-operating income.

However, the petroleum ministry is of the view that gas utilities should be given an incentive to receive 50% of the transportation income as non-operating income for the purpose of determining their revenue requirements. This is in line with the treatment allowed by Ogra in third party projects in order to encourage the companies, particularly when they are getting 7% negative return on assets.

Ogra says if the fee is treated as non-operating income it will provide dual benefit for the gas companies in terms of keeping 50% of transportation fee and 17% return on assets. Therefore, the proposed arrangement has no rationale.

Published in The Express Tribune, May 5^th,  2015.

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