Ministry seeks guaranteed return on LNG assets

Wants the ECC to allow utilities to recover funds from consumers

ISLAMABAD: The Ministry of Petroleum and Natural Resources is pressing the Economic Coordination Committee (ECC) to allow gas utilities to recover from consumers a guaranteed rate of return on assets associated with the liquefied natural gas (LNG) pipeline network.

Gas utilities - Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL) - are already enjoying a 17.5% guaranteed rate of return on assets and they now want the Oil and Gas Regulatory Authority (Ogra) to allow the same treatment in terms of the LNG pipeline network.





However, Ogra has refused to permit the utilities to recover Rs101 billion from gas consumers for funding mega pipeline projects. It was of the view that it would lead to a double impact on the consumers and they would be paying around Rs36 billion every year.

In another proposal, the Ministry of Petroleum suggested that the ECC should stick to its earlier stance that allowed borrowing of Rs101 billion by the gas utilities from commercial banks instead of relying on proceeds of the gas infrastructure development cess (GIDC).

The cess was imposed by the previous Pakistan Peoples Party-led government with the objective of financing gas import projects.

The ministry pointed out that the decision on commercial borrowing for system augmentation had already been taken by the ECC and it also had prior consent of the Finance Division.

In the third proposal, the ministry suggested that Ogra should include the financial cost incurred on establishing the re-gasified LNG infrastructure as admissible expense in calculating the revenue requirements of the gas utilities.

The regulator, however, has categorically told the gas companies that financing for all mega pipeline projects should come through GIDC in order to stave off a double impact on the consumers, who were already paying the cess and return on assets.



“Financing for such projects through GIDC will not be added to the rate of return. Therefore, this burden could not be passed on to the consumers and general public and all such projects should be financed through GIDC, which has been imposed exclusively for such purposes,” Ogra said.

During the determination of estimated revenue requirements for 2015-16, Ogra had disallowed the utilities return on assets required to carry re-gasified LNG on the ground that these assets would be created from the funds already generated from the consumers under the GIDC Act.

SSGC argued that the company was making a substantial investment of Rs60 billion in the re-gasified LNG project and was bearing huge financial costs to finance these investments out of its own resources, but the return on which was not guaranteed.

Published in The Express Tribune, January 21^st, 2016.

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