CNG price conundrum: OGRA proposes Rs13 per kg hike; SC to consider on Monday

Move proposed to keep CNG pumps operational; authority wants margins reduced.

ISLAMABAD:

The reprieve provided to customers by the slash in CNG prices might be coming to an end.

The Oil and Gas Regulatory Authority (Ogra) on Saturday proposed a hike in CNG prices of up to Rs13 per kilogramme (kg) to keep CNG stations operating in the country.

The Supreme Court will consider the proposed CNG prices plan in its hearing scheduled on Monday, November 19.

In its orders issued on October 25, the Supreme Court directed CNG prices to be cut after declaring the mechanism of basing CNG prices on the price of petrol as illegal.

Ogra subsequently placed a price cut of Rs30 per kg, ending a memorandum of understanding between the government and the CNG Association on a formula for the operating cost of CNG stations. Subsequently many stations shut down due to the lower prices, saying that they were not even able to pay gas utility bills.

In its report submitted to the Supreme Court on Saturday, in line with the final forensic report conducted by a consultant, Ogra recommended the price increase of up to Rs13 per kg for Region-1 – comprising Khyber-Pakhtunkhwa, Balochistan and the Potohar Region (Rawalpindi, Islamabad and Gujar Khan) and Rs11.56 per kg increase in Region-2 – Sindh and Punjab (excluding Potohar Region) to let CNG stations remain operational.

Presently, consumers are being charged Rs61.64 per kg in Region-1 and Rs54.16 per kg in Region-2. After the proposed increase, the price of CNG in Region-1 will rise to Rs74.64 per kg. In Region-2, the price will rise to Rs65.72 per kg.

Sources said that Ogra had recommended the increase in a bid to keep CNG stations open and prevent consumers from facing hardship.

According to the report, Ogra also proposed to reduce the profit margins of CNG dealers by revising the margins formula. CNG dealers have been receiving margins following the present formula that ensures a 20% rate of return on the total cost of gas, including operating expenses. But the regulatory authority has said that it will be delinked with the cost. According to the report, it has proposed to link the margin for dealers with investment by investors to set up CNG stations.

According to the price slash on October 25, the margin of CNG has already been reduced from Rs11 to Rs6.22 per kg. This margin will be further slashed from the existing Rs6.22 to Rs3.50 per kg following the new profit margin formula, sources added.

Ogra had awarded a contract to a chartered firm, Avais Hyder Liaquat Nauman, to conduct an audit of 11 CNG stations regarding how much profit they earn to determine the new pricing formula. The audit firm was asked to submit its findings to Ogra within four days. Sources said the recommendations of the audit firm are close to the proposed increase in CNG prices by Ogra.

According to the break-up of the current CNG prices, the government’s tax share in Region-1 is Rs35.89 per kg, which breaks down into Rs11.57 per kg of cross subsidy, Rs7.77 per kg sales tax at a rate of 25%, Rs13.24 per kg for Gas Infrastructure Development Cess (GIDC) and a sales tax on GIDC at a rate of 25%, amounting to Rs3.31 per kg.

Published in The Express Tribune, November 18^th, 2012.