ISLAMABAD: The Economic Coordination Committee (ECC) is likely to approve increase in natural gas prices on Wednesday (Feb 14) to be effective from Feb 2024.
Sui Southern Gas Company Ltd (SSGCL) and Sui Northern Gas Pipelines Ltd (SNGPL) are public sector gas utility companies licensed from Oil & Gas Regulatory Authority (Ogra) for purchase, transmission, distribution and sale of gas to consumers in the country. Ogra determines annual revenue requirements of both SUI companies in accordance with the respective license conditions, Natural Gas Tariff Rules 2002 and Section 8 of the OGRA Ordinance 2002.
Ogra under Section 8(2) of the OGRA Ordinance, 2002 vide its decision of February 2, 2024 has issued determination of Review Estimated Revenue Requirements (RERR) for FY 2023-24 for both SNGPL and SSGCL. According to the said determination, SNGPL requires a revenue of Rs. 592 billion and SSGCL requires a revenue of Rs. 310 billion in FY 2023-24 so the total revenue requirement has been determined at Rs. 902 billion arriving at an average prescribed price of Rs. 1,596/MMBtu .
The RERR decision is the revision of earlier determination of Estimated Revenue Requirements (ERR) of June 2, 2023 made pursuant to Section 8(1) of the OGRA Ordinance, 2002. Pursuant to Section 8(3) of the OGRA Ordinance 2002, Federal Government is required to advise Ogra revision in the category-wise consumer gas prices for FY 2023-24 while ensuring that the overall RERR is met.
According to RERR natural gas volumes of both SSGC and SNGPL have reduced while RLNG diversion has exceeded significantly which has resulted in a sales revenue shortfall of approximating PKR 48 billion by June 2024. Petroleum Division (PD) has devised a tariff proposal for meeting the RERR with sales price revision effective from 1st February, 2024 till 30th June 2024. The detail of gas price revision
I. Domestic (Residential): For protected consumers, the existing tariff slabs are proposed to be increased gradually in the range of Rs. 80-100/MMBtu. For unprotected consumers, a gradual increase has been proposed in the tariff slabs ranging from Rs. 200 to 300/MMBtu. There is no change being proposed in the monthly fixed charges of both categories. The previous slab benefits will remain available to all domestic consumers except the last slab of unprotected consumers. The domestic category will still be availing a cross subsidy of PKR 108 billion as the protected consumers category and first 4 slabs of unprotected category are priced lower than prescribed price.
II. Bulk Domestic and Special Commercial (Roti Tandoor): The tariff for Bulk consumption is proposed to be increased from Rs. 2,000/MMBtu to Rs. 2,900/MMBtu. A flat tariff of Rs. 700/MMBtu will be charged to Special commercial (Roti Tandoor) category. The tariff for special commercial category has not been changed since 2015.
III. Fertilizer: The feed and fuel gas price for Engro Fertilizer and Fauji Fertilizer Bin Qasim plant is proposed to be Rs. 760/MMBtu and Rs. 1,750/MMBtu. The effective date for revised gas tariff for Engro Fertilizer shall be 1st March, 2024. Two other plants namely Agritech and Fatima Fert are currently getting RLNG from SNGPL network. The proposed price for these plants will be Rs. 1,596/MMBtu which is the average prescribed price in case these plants are offered system gas on SNGPL.
IV. Industry Export and Non-Export (Process and Captive): The bifurcation of export and non-export category is misleading. While the export industry, the erstwhile zero-rated industry comprises of 5 industries namely textile (including jute), carpets, leather, sports and surgical goods, there are many other industrial units which are also en rice, steel, ceramics, cement, glass etc. Sectors categorized as ‘exports’ also supply goods in the local market whereas sectors categorized as ‘non-exports’ supply goods to international markets also. In order to encourage industry as a whole, especially to the gas-based units engaged in exports of any kind of goods and services, PD is of the view that existing categories of export and non-export may be abolished. A proposal to this effect has also been endorsed in-principal in the 9th Apex Committee of SIFC.
The existing tariff for process use of gas is Rs. 2,100/MMBtu and Rs. 2,200/MMBtu for export and non- export industry respectively. Post proposed removal of the distinction between the two, the tariff will be kept at Rs. 2,200/MMBtu for process use of gas.
It is a considered view of Petroleum and Power Divisions that the use of gas for power generation by captive units reduces the demand for electricity from the national grid. This results in unutilized capacity and high-capacity payments built in electricity tariffs of grid consumers leading to power sector liquidity crisis. This is highlighted in the IMF’s country report 24/17 titled ‘First Review Under the Stand-by Arrangement’ in January 2024. The full transition by captive power plants to the grid is committed by January 2025, however the gradual shift requires an upward revision of tariff. The current proposal for the captive use is proposed to be Rs. 2,950/MMBtu in line with the aforementioned understanding.
CNG: The existing tariff for CNG sector is proposed to be revised from Rs. 3600/MMBtu to Rs. 3,750/ MMBtu equivalent to the RLNG price being the fuel for majority CNG producers in the country.
The PD is of the considered view that the revision of sale prices/tariff should be consistent with the revenue requirements of Ogra so as to stop the flow of circular debt in the gas sector. Accordingly, following proposals are submitted for consideration of the ECC of the Cabinet: the effective date for the revision of feed gas tariff for Engro Fertilizer on SNGPL network shall be 1st March, 2024.
ii. In terms of Section 8(6)(a) of the OGRA Ordinance, 2002 and Rule 2(1)(b) of the Natural Gas Tariff Rules 2002, the existing categories of export and general industry (non-export) would be abolished and new category as General Industry (Process) and General Industry (Captive) would be introduced with revised tariff. SUIs may continue to offer blended tariff to Industry (process and captive).
The PD has taken note of the notable variations in the natural gas and RLNG volumes stated in the petitions submitted by both SUIS and determination based on the same volumes by Ogra. In-line with ECC decision of October 7, 2020, Ogra is required to verify the RLNG diversion volumes before allowing recovery of revenue shortfall. Ogra is therefore advised to expeditiously complete the third-party audit of diversion volumes pending on their part since above decision of the ECC and submit the final report within 60 days of the date of approval of this summary.
Copyright Business Recorder, 2024
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