The Economic Co-ordination Committee (ECC) of the Cabinet has decided to make required changes in the Ogra Ordinance for allowing Ogra to determine the cost of Liquefied Petroleum Gas (LPG) as well as Weighted Average Cost of Gas (WACOG) on monthly basis.
The ECC in its meeting on April 12, 2012, while approving in principle the proposed policy guidelines on LPG air mix, CNG or LNG based pipeline distribution projects undertaken by Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited(SSGCL), constituted a committee, comprising Minister for Petroleum (Convenor), Minister for Water & Power, Deputy Chairman Planning Commission and Secretaries, Economic Affairs and Petroleum for (i) working out the mechanism for air mix of LPG in the system by ensuring transparency and (ii) determining pricing formula based on lowest cost and its impact on consumer price.
The committee in its meeting on April 27, 2012 discussed the matter of injection of LPG air mix in the system at length and it was decided that, being an operational issue, both the gas utilities will work out the modalities for injection of the LPG air mix in the system to supply the same to selected industrial and power consumers, while ensuring that liquid condensation issues do not affect the system.
The committee also discussed the matter of pricing formula for LPG air mix and its impact. It was decided that Ogra would calculate the cost of LPG air mix and its impact on the existing/new consumers of gas utilities with the objective that minimum impact will be passed onto the domestic and commercial consumers, while the maximum impact will be passed on to industrial and power sector consumers who will also be the primary beneficiaries. It was also stated that the impact of the LPG air mix on consumer prices would be approximately 1.84 to 26.31 % higher of current prices depending on the volume of air mix but is expected to decrease substantially due to the recurring summer fall in LPG prices. Additionally, it was also decided by the meeting that supply of LPG for LPG air mix projects will be ensured through open bidding while Ogra would be entrusted to determine the cost of LPG as well as WACOG on monthly basis. Ministry of Petroleum sought approval of the ECC to the following proposals: (i) these guidelines are applicable to distribution projects for supply of piped LPG air mix, LNG or CNG by the SSGCL/ SNGPL) to retail consumers, subject to approval of their Board of Directors;(ii) retail tariff applicable in case of these projects will be the same as that of natural gas being supplied to various categories of consumers through existing transmission and distribution network;(iii) all expenditure incurred on installing, maintaining and operating these projects including cost of gas shall be included as permissible expenditure in the revenue requirements of the respective gas companies;(iv) the gas utilities will ensure prudency in all such expenditures to the satisfaction of the Regulatory Authority and also ensure ring fencing of all capital and revenue expenditures, including all cost allocations in respect of each such project;(v) SSGCL and SNGPL will be entitled to a rate of return equal to the rate of return applicable for gas operations and (vi) Ogra will include the cost of LPG air mix in uniform cost of gas formula in order to compute the WACOG. Further, Ogra would be entrusted to determine the cost of LPG as well as WACOG on monthly basis.
When this issue was placed before the ECC on July 3, 2012, it was intimated that there was no other alternative to meet the shortage of gas in the country. However, there is a need to work out some mechanism with regard to risk in case of prices/cost not acceptable to the consumers. It was also opined that under ECC decision of December, 27, 2007, powers to sanction stand-alone projects for LPG air mix were vested in the President, Prime Minister, Cabinet and the ECC.
However, under proposed policy guidelines, these powers are being vested in the Boards of Directors (BoDs) of gas utility companies. As these boards include private members, the possibility of misuse of these powers cannot be ruled out.
Besides, WACOG needs further deliberations and analysis. It was also stated that at present, Ogra determined the gas prices for six months, while the proposal involved determination of gas prices on monthly basis, which would require amendments in the Ogra ordinance and the rules made thereunder.
It was further stated that LPG air mix is an upstream activity, while Ogra is involved in downstream activities. An opinion was expressed that Ogra, being a regulator, may not be involved in policy-related decisions as it was the function of the government.
On a query, ECC was informed that volume of LPG to be imported for the proposed air mix would be around 200 - 300 MMCFD.
With regard to import of LPG, the ECC was informed that it will be done by Sui Southern Gas Company Ltd, which already has a terminal at Karachi.
After detailed discussion, ECC took the following decisions: (i) the total increase of gas by air mix will be 100 mmcfd for SSGCL and 150 MMCFD for SNGPL; (ii) this approval is for LPG air mix only and not for CNG or LNG; (iii) The import of LPG will be carried out by the SSGCL; (iv) all proposals of various projects will be placed before the ECC for approval after finalisation of their technical and financial aspects by gas utility companies after observing due process of applicable laws and internal approvals and (iv) the Minister for Law will identify and analyse/ finalise the changes required in the Ogra Ordinance and the rules made thereunder for allowing Ogra to determine the cost of LPG as well as WACOG on monthly basis.
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