Passing the buck: Petroleum ministry wants monthly revision of gas tariffs

Proposal to shift from six-monthly to monthly price revision comes after plans to inject LPG-Air mix into the system.

ISLAMABAD:

Consumers should be ready for periodic fluctuations in the price of gas, as the petroleum ministry insists that the Oil and Gas Regulatory Authority (Ogra) revise gas tariffs on a monthly basis. The proposal seeks to pass on a 50% increase in gas prices to consumers, following the injection of the expensive LPG-air mix fuel in the distribution network of gas utilities.

In a summary moved to the Economic Coordination Committee (ECC), the petroleum ministry is seeking approval for injecting 50 million cubic feet per day (mmcfd) of LPG-air mix in the Sui Southern Gas Company (SSGC) network at the higher rate of Rs2,400 per million British thermal unit (mmbtu), against the existing price of Rs422.86 per mmbtu. In this regard, the petroleum ministry is also seeking approval to increase gas prices by 9.9% for all consumers except domestic consumers.

According to the petroleum ministry, gas supplied under this plan will add 100 mmcfd to the SSGC network, and 150 mmcfd in the Sui Northern Gas Pipelines network. “The injection of 250 mmcfd may cause a hike in gas prices for all consumers except domestic by 50%,” an official of the petroleum ministry said. According to reports, the government also plans to inject LNG in the system at the rate of over $18 per mmbtu, which may further push up the weighted-average cost of gas.

The ECC has been informed that revisions in gas prices can be sought by the two gas utilities only once every six months under existing laws, because Gas Purchase Agreements provide for only two resets in the wellhead prices during the year. Because LPG is an imported fuel, an amendment in the law will therefore be required to determine the price of gas supplied through imports. Consequently, revisions in the gas prices will have to be made at more frequent intervals than a six-monthly basis to accommodate changes in the cost of imported gas.

The petroleum ministry further said that the minister for law, justice and parliamentary affairs will indentify, analyse and finalise the changes required in the Ogra Ordinance, and the rules made under its provisions, to allow Ogra to determine the cost of LPG as well as the weighted-average cost of gas on a monthly basis.

The ECC has been informed that the issue of determining the weighted-average cost of gas was examined during a meeting convened by the Minister for Law on September 20, 2012, and that deliberation will soon be concluded in this regard.

In the first phase, the petroleum ministry wants to increase gas prices for all consumers except domestic consumers by 9.9% during financial year 2012-13, after injecting 50 mmcfd LPG-air mix at the rate of $25 per mmbtu.

It may be noted that the cost of LPG is higher than the gas to be imported from Iran, Turkmenistan and the price of LNG. Pakistan is to get gas from Iran and Turkmenistan at $10 to $11 per mmbtu, while LNG suppliers are asking for $18 per mmbtu. The price quoted by LNG suppliers had earlier given rise to a lot of controversy in the country.

Published in The Express Tribune, January 8^th, 2013.

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