SIFC approves deal for resuming LPG production

With reopening of JJVL plant, local LPG output will be maximised

ISLAMABAD:

The Special Investment Facilitation Council (SIFC) has approved a revised deal between Sui Southern Gas Company (SSGC) and Jamshoro Joint Venture Limited (JJVL) for resuming liquefied petroleum gas (LPG) production at the latter's plant in a bid to reduce Pakistan's energy import bill.

The objective of the recent SIFC decision is to maximise production of LPG in the country. The resumption of JJVL operations will not only boost local supplies but it will also help to overcome shortage, especially in winter.

In recent times, following closure of JJVL, Pakistan has been more reliant on LPG import, which also put pressure on foreign exchange reserves.

Now, the SIFC has set a deadline of February 25 for SSGC board of directors, which is required to formally approve the decision of resuming operations at JJVL. However, sources said, the SSGC board has not taken any decision so far due to the absence of petroleum secretary, who is on an official visit to Azerbaijan.

Sources said that the Petroleum Division informed the SIFC that the Supreme Court had approved an interim revenue-sharing arrangement – 57% for SSGC and 43% for JJVL – and tasked public accounting and business advisory services firm AF Ferguson and Company with determining a final revenue-sharing framework, subject to the court's approval.

AF Ferguson determined a revenue-sharing ratio of 57.54% in favour of SSGC. However, no product sharing between SSGC and JJVL was provided for a court-approved agreement.

The lack of agreement between the two parties left the matter unresolved. A working group meeting was held on January 21, 2025 to agree on an arrangement. However, it noted that gap still existed between the SSGC's proposed revenue-sharing ratio of 78:22 and JJVL's offer of 64:36 – both of which allocated 25% of LPG to SSGC.

SSGC suggested that with the inclusion of captive and industrial blend, the ratio could be further adjusted to 70:30. In case of disconnection of gas supply to captive power plants, the ratio will become 56:44.

The working group concluded that consensus could be reached on a revenue-sharing ratio of 66:34 for SSGC and JJVL, respectively, with 25% LPG share for SSGC based on the producer price notified by the Oil and Gas Regulatory Authority (Ogra).

It was noted that the SIFC executive committee concurred with decisions of the working group meeting held on January 21 with directives that the JJVL plant must be made operational without further delay, in alignment with the objective of maximising domestic LPG production.

It directed that an agreement should be reached on revenue sharing at a ratio of 66:34 (SSGC and JJVL), with a 25% LPG share for SSGC based on the Ogra-notified producer price. This ratio is considered well above the provisional revenue-sharing formula of 57:43 endorsed by the Supreme Court.

The 66:34 revenue-sharing ratio is based on the actual sales value for SSGC, considering the sales mix of fertiliser (31%), processing (27%) and captive power units (42%).

According to the revised deal, in the event of price revisions by Ogra or changes in sales mix/consumer categories by the federal government, the revenue-sharing ratio will be reviewed and revised accordingly.

Any undisputed dues payable to SSGC by JJVL must be cleared before the resumption of gas supply to the plant and an FIA inquiry should be concluded at the earliest. Also, the minister of petroleum and the Ministry of Energy – Petroleum Division should be kept informed.

SSGC has to place the executive committee directives and the arrangement before its board for approval no later than February 25, 2025. The Petroleum Division will ensure compliance.