Provinces reject weighted average cost of gas
Three major gas producing provinces - Khyber-Pakhtunkhwa (K-P), Sindh and Balochistan - have once again refused to bear burden of expensive liquefied natural gas (LNG) by introducing a weighted average gas price.
Punjab, with a higher population, is mainly dependent on imported gas due to shortage of local gas.
Sources told The Express Tribune that the federal government had tabled three proposals before the provinces.
Firstly, it asked the provinces to include LNG in the weighted average price of gas to recover full cost. Secondly, the federal government said full cost should be recovered from those consumers who were using RLNG. Thirdly, it said RLNG consumers should be cross-subsidised. However, the provinces did not agree with these three proposals.
When contacted, the petroleum secretary said the plan was to meet in two weeks and discuss supply, production and demand in order to come up with uniform numbers to work on. He said afterwards pricing options would be assessed and a decision would be made via consensus building and mutual consultation.
“The objective is to try to have an optimal solution for the next meeting of the Council of Common Interests (CCI),” he said.
The Petroleum Division hosted a consultative meeting on the pricing mechanism for gas and LNG on Monday. Minister for Energy Omar Ayub Khan and Special Assistant to Prime Minister on Petroleum Nadeem Babar co-chaired the meeting, where energy ministers of all provinces were present.
The forum explored the issues, challenges and plausibility of implementing a countrywide sustainable and affordable gas pricing mechanism. At the onset of the meeting, the energy minister said Prime Minister Imran Khan was keen to resolve issues pertaining to the gas sector and maintaining the supply chain of gas throughout the country.
The special assistant on petroleum initiated the discussion to explore a sustainable and affordable gas tariff mechanism. He outlined the major points of consultation held during a CCI meeting and gas seminar organised by the Petroleum Division in September 2020.
He said local gas production had decreased over the years, which contributed to the supply-demand gap. He also highlighted the prime minister’s vision to resolve the issue while keeping in view the constitutional right of provinces, which was acceptable to all stakeholders.
Babar talked about the legal constraints to addition of LNG to the gas pool. He said as per decision of the previous government, LNG was a petroleum product (ie petrol) and not natural gas. Consequently, LNG was “ring-fenced” from local gas, which was why the Oil and Gas Regulatory Authority (Ogra) could not include it in the gas pricing mechanism and the government could not provide a cross-subsidy system to meet all gas demand.
He told the forum about the cross-subsidy being provided by the government in the energy sector.
Provincial representatives admitted gas shortage across the country and asked the Petroleum Division to prepare a data-based formula for pricing mechanism for the gas sector.
The special assistant concluded the consultative session by describing it as a step in the right direction. He said follow-up sessions would be held between the federal government and provinces for formulating the gas tariff mechanism.
Separately, at a press conference, the petroleum minister said the previous government of Pakistan Muslim League-Nawaz (PML-N) had handed a landmine of circular debt to the Pakistan Tehreek-e-Insaf (PTI) government. He said the PML-N government had placed a cut of funds on renewable energy projects and executed expensive projects.
Ayub added that the PTI government had spent Rs43 billion to improve the transmission system of electricity. He claimed the addition of 4,275 megawatts of electricity to the system, adding that the circular debt could rise to Rs1,000 billion for not increasing energy prices. On the other hand, Babar said the previous government had installed an LNG terminal but no storage facility was developed.
He stressed that the current government was building a gas storage facility along with the North South Gas Pipeline. He also announced that the circular debt of Rs300 billion in the gas sector would be slashed to zero over the next four to five years.
Published in The Express Tribune, December 1st, 2020.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.