LPG air-mix: Gas tariff could go up to Rs4,000 per unit

OGRA opposes petroleum ministry’s plan to recover hefty subsidy cost from consumers

ISLAMABAD: The Oil and Gas Regulatory Authority (Ogra), in a startling disclosure, has said that each existing gas consumer will have to pay Rs4,000 per unit to bear the cost of subsidising users of liquefied petroleum gas (LPG) air-mix, the plants for which are planned to be installed in far-off areas.

Owing to this reason, the oil and gas industry regulator has fiercely opposed the plan of the Ministry of Petroleum and Natural Resources that wants to include the cost of LPG air-mix (a blend of vaporised LPG and air) plants in the weighted average cost of natural gas supplies.

In a letter to the ministry, Ogra cautioned that the setting up of LPG air-mix plants carried an approximate subsidy of Rs4,000 per million British thermal units (mmbtu) for each potential consumer, which would have to be borne by the existing natural gas consumers.

It was of the view that the inclusion of cost of standalone LPG projects in the weighted average cost was contradictory to the legal scheme for natural gas as provided in Section 8 of the Ogra Ordinance 2002.

“LPG cannot be technically and legally categorised as natural gas,” the regulator remarked.

“As per existing practice, the subsidy on LPG air-mix plants is allowed as a separate thing over and above the revenue requirements of gas (distribution) companies,” it said, suggesting that the practice may be continued for the proposed projects.

The initial policy envisaged for LPG air-mix projects was aimed at establishing standalone, ring-fenced projects for gas supply to the far flung areas where effectively no viable and feasible option was available. “A similar policy may also be proposed for such projects in the future,” the regulator stressed.

Ministry’s reply

However, the Ministry of Petroleum has not accepted the subsidy assessment made by the regulator, saying it is incorrect that the existing natural gas consumers would have to pay Rs4,000 per mmbtu.

The ministry pointed out that the generation cost of Synthetic Natural Gas or LPG air-mix including the cost of depreciation and return, estimated by Sui Northern Gas Pipelines Limited and Sui Southern Gas Company for the proposed plants - stood in the range of Rs3,055 to Rs3,238 per mmbtu. Of this, Rs600 per unit would be recovered from the LPG air-mix consumers.

It asked Ogra to suggest a mechanism to account for the impact of LPG air-mix plants on the weighted average cost of natural gas so that implementation of these projects of immense public importance does not get bogged down.

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

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