Free market dynamics: CNG prices likely to be deregulated

Filling stations will be free to set rates; will spark competition

ISLAMABAD:

The government is planning to stop fixing prices of compressed natural gas (CNG) for all retail outlets across the country and let the industry set consumer rates for the fuel that is cheaper than petrol.

Though a similar proposal was discussed in July last year, the government had turned it down. Now the situation is quite different as imported liquefied natural gas (LNG) is being used in CNG filling stations in the province of Punjab.

At present, the CNG industry in Punjab is using imported gas and its price is deregulated at all retail outlets. The federal government plans to extend the scope of deregulation to other provinces as well where the gas price is currently being regulated.

According to officials familiar with the development, the Ministry of Petroleum and Natural Resources has prepared and sent a summary to all the ministries and departments concerned to seek their views on the proposal.

Read: CNG station closure: Court seeks explanation from petroleum ministry

The ministry will also present the summary to the Economic Coordination Committee (ECC) to seek formal approval for deregulating CNG prices across the country after receiving comments from the ministries concerned as well as the Oil and Gas Regulatory Authority (Ogra).

Talking to The Express Tribune, Petroleum Minister Shahid Khaqan Abbasi acknowledged that the proposal was under consideration.

He said gas infrastructure development cess (GIDC) had been imposed but Ogra had not yet notified new CNG prices, adding the market had been deregulated in Punjab, therefore, the CNG sector would have to switch to the deregulated regime.

Officials pointed out that Ogra had failed to notify revised CNG prices for a long time because it lacked the required strength of members. This delay has led to the collapse of the CNG industry as its operational cost has increased. In other provinces, the operational cost has risen in the wake of gas outages for the filling stations.

“If the plan of deregulating CNG prices across the country is approved, CNG station owners will be empowered to set retail prices,” an official said, adding this would also spark competition among industry players.

The regulation of LNG market, in contrast to an earlier plan approved by the ECC, had forced the CNG industry to pay higher unaccounted-for-gas (UFG) cost at 11.5% whereas in other provinces the industry was paying 4.5%.

Apart from this, the government has imposed different charges on imported LNG to collect millions of dollars from the consumers, which will also go into the pockets of business tycoons, who are major shareholders in gas utilities.

Read: IN PUNJAB: CNG stations to reopen today

These charges are slapped after suspending third-party access rules framed by previous government of Pakistan Peoples Party, which allowed only the collection of transmission fee by the gas utilities.

The charges include PSO’s margins and other import-related cost, terminal charges under the LNG services agreement, cost of service for SSGC and SNGPL, administrative margins and recovery of transmission losses for the two gas utilities and LNG freight charges.

As a result of these costs, around $4 to $5 per million British thermal units (mmbtu) are going into the accounts of gas utilities and PSO. Ogra had opposed the recovery of varying margins and costs, arguing that licences of gas companies did not allow it. However, the ECC in its meeting on June 6 approved the margins and costs while ignoring concerns of the regulator.

Accordingly, the LNG price will be set in line with the prevailing practice for petrol and diesel, the rates of which are revised every month. It has also been agreed that detailed policy guidelines on components of the LNG sale price will be issued separately.

Published in The Express Tribune, July 14^th,  2015.

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