Resolution of dispute on JJVL LPG plant: Petroleum Div asked to submit summary to ECC

ISLAMABAD: The Cabinet Committee on Energy (CCoE) has directed the Petroleum Division (PD) to submit a formal summary to the Economic Coordination Committee (ECC) of the Cabinet for resolution of a dispute on Jamshoro Joint Venture Limited (JJVL) LPG plant, official sources told Business Recorder.

On December 23, 2021, Deputy Chairman, Planning Commission informed the CCoE that Prime Minister while chairing a meeting on LNG Terminal + Virtual LNG Pipeline held on November 15, 2021, directed the Deputy Chairman, Planning Commission to look into the issue of JJVL LPG and submit recommendations on the way forward before CCoE within two weeks.

According to sources, a series of meetings were held on the issue with relevant stakeholders and a report was prepared and submitted the following findings: (i) Pakistan, currently, is facing acute gas shortages. The issue of resumption of gas to JVL plant thus needs to be seen in the overall scenario of gas supply in the country.

SSGCL directed to resume gas supply to JJVL LPG plant

The priority for allocation of natural gas between various categories of consumers is Government’s function. Competing demands and the needs of the citizens/ economy must be kept in view while allocating natural gas for a particular purpose;(ii) natural gas is supplied through a piped network to over 10 million consumers. This piped gas is mostly available to urban /peri-urban consumers only residing in comparatively better-off localities. The more economically hard-pressed citizens have to resort to LPG, which ironically is multiple times more expensive than piped gas; (iii) LPG supply (indigenous and with imports almost 100 percent) for the last three years shows the growth of 32%. Domestic production has decreased by 6%.

The number of LPG consumers is bound to increase, given the rapidly depleting natural gas reserves. LPG is also the domestic fuel of lower-income households who do not have access to piped gas; (iv) there are 2.8 million pending applications for gas connections on SNGPL system. Natural gas is depleting by 7%. Further expansion of pipeline network is thus not an economically feasible option; (v) as a matter of policy; hence, the focus should be shifted from the pipeline gas towards LPG as the preferred domestic fuel.

The current scenario of gas shortages is a conducive time for transition as consumers’ acceptability is enhanced for LPG as an alternate fuel;(vi) it should thus be Government’s endeavour to lower the cost of LPG and promote it instead of pipeline gas. The trade-off should be between domestic consumers receiving pipeline gas and those who would use LPG instead; (vii) using gas through LPG cylinders has the additional benefit of minimal losses since a pipeline network is not required. It also has higher efficiency and consumers exercise prudence in consumption, given that it is more expensive. The incentive structure and taxation thus needs to tilt towards usage of LPG, particularly for equity consideration in favour of lower income segments; (viii) currently, the LPG demand is being met through imports and domestic production. A sound policy would promote domestic production of LPG to lower price and save foreign exchange. It is also pertinent to mention that import of LPG is costlier than the LNG; (ix) JVL plant is a state-of-the-art plant which was set up with foreign investment.

The plant; however, is not operational since June 2020 due to the non-supply of gas from SSGCL. It requires 8-10 mmcfd gas for the production of 200 TPD of LPG. The government’s aim should be to harness all resources to meet the growing demand of LPG, foremost through domestic production and the shortfall by imports; (x) SSGC has been collaborating with JVL till 2020 through various arrangements. It can; hence, enter into a gas supply arrangement, without prejudice to existing claims and liabilities. JJVL, in its letter of December 18, 2021, has confirmed that it is ready to pay OGRA notified industrial tariff to SSGC;(xi) SSGCL will benefit from the JJVL plant operation as it will get a higher price from selling gas to the plant rather than to the domestic consumers;(xii) although LPG retail price is set at import parity cost, yet domestic LPG with a lower cost of production may reduce the retail price of LPG in the domestic market; and (xiii) assuming that each household uses one cylinder per month, JJVL claims that operating the plant would serve 750,000 LPG consumers. One cylinder per month is on the lower side. Assuming two cylinders per month, the number would be 380,000. Provision of 8-10 mmcfd gas to JJVL would thus serve additional consumers, depending upon the consumption. SSGCL pipeline network contains around 1000 mmcfd. Reduction of 8-10 mmcfd is nominal and would spread throughout the pipeline system.

Accordingly, in pursuance of the directive, the report along with the following recommendations was presented before the CCoE: (i) ECC’s decision of August 2020 needs to be followed up and implemented. A report had to be submitted to ECC as well, which has not been done. In interest of augmenting domestic production of LPG, SSGC needs to supply 8-10 mmcfd natural gas for production of 200 TPD of LPG by JJVL through a commercial agreement. The resumption of gas to JJVL should; however, be conditional to payment of undisputed outstanding amounts to SSGCL; (ii) the disputed amounts, pending in courts, should be settled expeditiously. Both the parties may apply to the court for an early hearing to resolve the disputes; and (iii) based on the Law Division’s advice, the arrangement for resumption of gas supply to JJVL plant for the production of LPG may be sent to the Supreme Court of Pakistan for directions to comply with its decision of December 4, 2018.

The CCoE noted the report “Jamshoro Joint Venture Limited (JJVL) LPG Plant” presented by Deputy Chairman, Planning Commission, and directed the Petroleum Division to submit a formal summary to the ECC with a viable proposal in light of recommendations of the report. The sources said, Petroleum Division will submit a summary to the ECC, after it receives ratification of CCoE decisions by the Federal Cabinet.

Copyright Business Recorder, 2022