Domestic consumers bear Rs17b subsidy cost

Provinces reluctant to pay cost of subsidised LNG supply to fertiliser plants

ISLAMABAD:

As provinces refuse to bear the cost of subsidised liquefied natural gas (LNG) supply to two fertiliser plants, the caretaker government has put a burden of Rs17 billion on domestic consumers. The provinces want full recovery of LNG cost from the farmers.

The Petroleum Division was of the view that the continuation of re-gasified LNG supply at Rs1,239 per million British thermal units (mmbtu) from January to March 2024 involved estimated financial implication of Rs17 billion in terms of tariff differential with the notified RLNG price, which was $13 per mmbtu.

The decision made by the Economic Coordination Committee (ECC) on November 23, 2023 had been conveyed to the Oil and Gas Regulatory Authority (Ogra), which said that as per the existing guidelines, they could only allow the recovery of RLNG volumes diverted to the domestic sector. Therefore, the guidelines for recovery of RLNG differential on account of supply at Rs1,239 per mmbtu may be reviewed.

The Petroleum Division proposed in a recent meeting of the ECC that the supply of RLNG to Fatima Fertiliser and Agritech Ltd be continued at Rs1,239 per mmbtu from January to March 2024 and the price differential be treated as RLNG diversion to the domestic sector for recovery through Sui Northern Gas Pipelines Limited’s (SNGPL) revenue requirement or through monthly RLNG pricing.

The ECC approved the proposal and an amount of Rs17 billion would be recovered from the domestic consumers.

The Petroleum Division informed policymakers that based on the directives of a meeting chaired by the prime minister and the apex committee of the Special Investment Facilitation Council (SIFC), it had estimated the cost of urea production with the help of RLNG from January to March 2024 along with dispatches.

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To finalise a mechanism for contribution by the provinces, a meeting, chaired by the petroleum secretary, was held with representatives of provinces on December 29, 2023.

However, none of the provinces agreed to contribute to the cost differential. Rather, they emphasised that RLNG may be supplied to both urea plants at full cost and the feriliser produced may accordingly be sold at a price that could recover the entire cost.

The Petroleum Division recalled that the ECC, in its meeting held on November 23, 2023, while considering a summary, had approved the continuation of RLNG supply to both the fertiliser plants, which were connected to the SNGPL network, from November 1, 2023 to December 31, 2023 at a rate of Rs1,239 per mmbtu determined by Ogra.

The meeting was told that the price differential between Ogra’s notified price for RLNG and Rs1,239 per mmbtu would be included in the revenue requirement of SNGPL.

In addition, the prime minister chaired a meeting on December 11, 2023 to discuss matters pertaining to fertiliser production and supply. In the huddle, the chief secretaries of provincial governments were directed to contribute to the subsidy as per their share in gas dispatches to urea manufacturers from January to March 2024.

It was informed that the federal government contributed a subsidy of around Rs20 billion on RLNG supply to fertiliser plants. “Provinces must contribute by sharing the burden of subsidy, as agriculture is a provincial subject.”

Published in The Express Tribune, February 29^th, 2024.

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