Finance ministry refuses to back CNG price deregulation
Fears it will lead to consumer exploitation, market abuse
The supply of gas to CNG stations would most likely decrease to the bare minimum in coming years and survival of the industry worth Rs450 billion would not be possible. PHOTO: FILE
ISLAMABAD:
The Ministry of Finance has expressed its opposition to a plan of deregulating prices of compressed natural gas (CNG) for all retail outlets across the country, saying it will encourage exploitation of consumers and abuse of market practices.
Giving comments in response to a proposal floated by the Ministry of Petroleum and Natural Resources about price deregulation, the finance ministry stressed that controlling and setting CNG prices with the help of appropriate regulatory safeguards was necessary to shield consumers from price exploitation through cartel formation and abuse of market practices.
CNG prices likely to be deregulated
The ministry suggested that it was also important that CNG prices were based on certain guidelines to ensure reasonability.
“Additionally, it is not understandable that in the absence of a legal cover and without any role in price determination, how Ogra (the regulator) will monitor the CNG sale price, which is necessary to ensure price stability,” it asked.
The ministry pointed out that the Economic Coordination Committee (ECC) had allowed import of liquefied natural gas (LNG) for use in CNG filling stations in the face of natural gas shortage. The permission was given along with fiscal incentives such as a reduced 5% general sales tax and zero gas infrastructure development cess in order to maintain price parity at about 70% of the petrol price.
CNG station closure: Court seeks explanation from petroleum ministry
Therefore, the parity should be maintained and the CNG stations should not be allowed to charge a discretionary price from the consumers.
Earlier, the Ministry of Petroleum, in a summary to the ECC, suggested that there could be no parallel systems for the CNG consumer prices where the price of CNG produced through domestically produced natural gas is regulated and the price of CNG produced with the help of LNG is not regulated.
In order to provide a level playing field for the producers and a fair market for the end-consumers, the price of CNG based on natural gas should be deregulated, it said.
CNG prices raised by up to Rs5.36 per kg
At the same time, the ministry said it would ensure that a prudent mechanism was established in consultation with the Oil and Gas Regulatory Authority (Ogra) and other stakeholders for effective monitoring of the CNG prices and intervention against potential price manipulation through a cartel and abuse of market practices.
Keeping in view the natural gas demand and supply projections, the ministry pointed out that the supply of gas to the CNG stations would most likely decrease to the bare minimum in coming years and survival of the industry worth Rs450 billion would not be possible.
Though end-consumer CNG prices have stood lower than petrol, the production has failed to keep pace with demand that has surged exponentially and led to excessive load management and import of LNG.
CNG lobby contests legal status of gas cess
The CNG stations running on natural gas in Punjab have been completely shut since November 2014. In Sindh, the filling stations stay open for three to four days a week whereas in Khyber-Pakhtunkhwa and Balochistan they are fully operational throughout the week based on supply of natural gas.
The petroleum ministry has sought the ECC’s approval for deregulating the CNG sale prices with no role for Ogra to determine and notify the rates. The filling stations will determine their own sale price.
Ogra, on its part, will monitor the prices in order to ensure that they are reasonable and if the regulator feels that consumers are being exploited or the industry is working as a cartel, it will intervene for a revision in the prices.
Published in The Express Tribune, November 13th, 2015.
The Ministry of Finance has expressed its opposition to a plan of deregulating prices of compressed natural gas (CNG) for all retail outlets across the country, saying it will encourage exploitation of consumers and abuse of market practices.
Giving comments in response to a proposal floated by the Ministry of Petroleum and Natural Resources about price deregulation, the finance ministry stressed that controlling and setting CNG prices with the help of appropriate regulatory safeguards was necessary to shield consumers from price exploitation through cartel formation and abuse of market practices.
CNG prices likely to be deregulated
The ministry suggested that it was also important that CNG prices were based on certain guidelines to ensure reasonability.
“Additionally, it is not understandable that in the absence of a legal cover and without any role in price determination, how Ogra (the regulator) will monitor the CNG sale price, which is necessary to ensure price stability,” it asked.
The ministry pointed out that the Economic Coordination Committee (ECC) had allowed import of liquefied natural gas (LNG) for use in CNG filling stations in the face of natural gas shortage. The permission was given along with fiscal incentives such as a reduced 5% general sales tax and zero gas infrastructure development cess in order to maintain price parity at about 70% of the petrol price.
CNG station closure: Court seeks explanation from petroleum ministry
Therefore, the parity should be maintained and the CNG stations should not be allowed to charge a discretionary price from the consumers.
Earlier, the Ministry of Petroleum, in a summary to the ECC, suggested that there could be no parallel systems for the CNG consumer prices where the price of CNG produced through domestically produced natural gas is regulated and the price of CNG produced with the help of LNG is not regulated.
In order to provide a level playing field for the producers and a fair market for the end-consumers, the price of CNG based on natural gas should be deregulated, it said.
CNG prices raised by up to Rs5.36 per kg
At the same time, the ministry said it would ensure that a prudent mechanism was established in consultation with the Oil and Gas Regulatory Authority (Ogra) and other stakeholders for effective monitoring of the CNG prices and intervention against potential price manipulation through a cartel and abuse of market practices.
Keeping in view the natural gas demand and supply projections, the ministry pointed out that the supply of gas to the CNG stations would most likely decrease to the bare minimum in coming years and survival of the industry worth Rs450 billion would not be possible.
Though end-consumer CNG prices have stood lower than petrol, the production has failed to keep pace with demand that has surged exponentially and led to excessive load management and import of LNG.
CNG lobby contests legal status of gas cess
The CNG stations running on natural gas in Punjab have been completely shut since November 2014. In Sindh, the filling stations stay open for three to four days a week whereas in Khyber-Pakhtunkhwa and Balochistan they are fully operational throughout the week based on supply of natural gas.
The petroleum ministry has sought the ECC’s approval for deregulating the CNG sale prices with no role for Ogra to determine and notify the rates. The filling stations will determine their own sale price.
Ogra, on its part, will monitor the prices in order to ensure that they are reasonable and if the regulator feels that consumers are being exploited or the industry is working as a cartel, it will intervene for a revision in the prices.
Published in The Express Tribune, November 13th, 2015.