Consumers can save billions if Sindh waives cess: CCP

Province charges 1.15% development cess on all LNG imports

LAHORE: Consumers of liquefied natural gas (LNG) in Pakistan can save billions of rupees annually if the Sindh government exempts them from the infrastructure development cess, said the Competition Commission of Pakistan (CCP).

Pakistan’s LNG imports have reached around 10 million tons since their inception in fiscal year 2015-16. The Sindh government charges development cess at the rate of 1.15% on all LNG imports as it has not defined LNG as a petroleum product. The cess paid to Sindh is above all the taxes and duties and is passed on to the end-consumers, the CCP stated in its latest ‘Competition Assessment Study of LNG’.

Independent analysts suggest that once the available terminals start operating at full capacity of 9 million tons, the end-consumers can keep up to Rs6.5 billion annually given the Sindh government removes the LNG cess. The CCP underlined the need for rationalising fixed port charges for handling LNG cargoes and granting exemption from the cess similar to other petroleum products, terming reduction of the imported gas cost ‘essential’.

Port charges are said to be non-competitive when compared with other regional players buying LNG. Additionally, the cess was introduced by the Sindh government to cover the high cost incurred on the maintenance of roads and law and order arrangements for the safe passage of imported consignments.

However, unlike other petroleum products, it is observed that RLNG requires no road or similar infrastructure for transporting it to the upcountry as it is supplied through pipelines. The security cost of such installations is not borne by the provincial government. Hence, the cess should be withdrawn from LNG cargoes.

As per CCP findings, the cost of RLNG includes the various components added to the LNG Delivered Ex-ship (DES) price. Among others, it includes PSO/PLL import-related actual costs including port charges and the cost of handling LNG.

The Port Qasim Authority (PQA) charges a fee on LNG cargoes for using the port infrastructure. It charges $600,000 per LNG vessel. These port charges are shared by both the supplier and the procurer of LNG. In the case of the government-to-government LNG deal, $320,000 is paid by Qatargas (the exporter) and $280,000 by PSO. Similarly, in the case of a five-year agreement with Gunvor, $500,000 is paid by Gunvor (the supplier) and $100,000 by PSO. In the agreement between PLL and Eni, the exporter pays $500,000.

PSO pays different port charges in the two agreements, however, the contract price is the same ie 13.37% of Brent crude price.

The port charges are incorporated into the DES price, which is to be paid by the seller and the remaining is added to the RLNG price.

Comparing the port charges paid by both PSO and PLL, it is evident that PSO pays a higher amount as compared to PLL. Furthermore, competitive port charges would reflect in a competitive price of RLNG to be paid by consumers. For efficient utilisation of both of these terminals, it is recommended that their capacity must be optimally utilised.

Higher port charges result in an elevated LNG price and this price is ultimately paid by the end-consumers. It is, therefore, recommended that the port charges should be competitive and comparable to the other regional players procuring LNG, it said.

Published in The Express Tribune, November 23^rd, 2018.

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