LNG supply: Gas companies demand revision in margins

Besides LNG users, other consumers may also have to pay higher tariff.

ISLAMABAD:

The supply of imported liquefied natural gas (LNG) to consumers may not come at a cheaper price as gas distribution companies are lobbying for a major slice of the profit with a revision in margins in order to recoup losses caused by gas theft.

If the government gives its nod of approval to the demand, the gas utilities will not only be making money from the LNG consumers, but others consuming locally produced natural gas will also be forced to pay a higher tariff.

Officials aware of the developments say Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) – the two gas distribution companies working in the country – have come up with some suggestions to generate higher revenues through LNG supplies.



Firstly, they want to recover the 10.63% losses caused by theft and leakage – called unaccounted for gas (UFG) – from LNG consumers, mainly independent power producers, which will be eventually passed on to electricity consumers.

This way, the gas utilities will be indirectly recovering their losses from the power consumers, who are paying electricity bills regularly.

Secondly, gas companies are permitted to recover 17.5% guaranteed rate of return on their assets. In the past, no new gas supplies were added to the system, which helped the companies to make more money because of a rise in their assets value. However, it led to increase in outages and prices for the consumers.

Now, the utilities are pressing the government to revise the value of assets in line with current prices, meaning a hike in tariffs and more revenues for the companies. The assets are 10 years old and have depreciated in value.

Thirdly, they want margins on transmitting LNG through their pipeline networks. However, officials point out that gas companies are already receiving a guaranteed rate of return, therefore, transportation charges should be adjusted in tariffs in favour of the consumers.

The utilities want a 50% share in total receipts on account of transportation charges and the remaining to be adjusted in consumer bills.

Officials say the imported LNG will be for the consumers linked to the SNGPL network, but SSGC also wants to reap the benefits.

“The Ministry of Petroleum and Natural Resources has prepared a summary in order to seek approval of the Economic Coordination Committee (ECC) in its upcoming meeting for pushing ahead with the plan,” an official said.

At present, SNGPL and SSGC are engaged in the transmission and distribution of natural gas in the country. Upon availability, the re-gasified LNG will be transported from the SSGC network to the SNGPL system under swap arrangements between them to meet the demand of consumers including power plants.

Existing capacity of the transmission system is limited to 325 million cubic feet of gas per day, which has been allocated to the independent power producers from March. It will be enhanced to 400 mmcfd by November this year.

Published in The Express Tribune, April 1^st,  2015.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.