Oil and Gas Regulatory Authority (OGRA) has reportedly raised objections over four percent margin for Pakistan State Oil (PSO) on import of LNG, saying that consumers should not be unnecessarily burdened, well informed sources told Business Recorder. According to sources, Ministry of Petroleum and Natural Resources, in its draft summary of April 2, 2015 provided that it intends RLNG pricing in line with pricing of other petroleum products on monthly basis and accordingly relevant schedule of Petroleum Products (Petroleum Levy) Ordinance 1961 are being amended to declare RLNG as a petroleum product.
Accordingly, RLNG price shall he notified monthly, as decided by the federal government. OGRA maintained that eventually entire LNG/RLNG supply chain is required to be governed by a proper regulatory framework under one legislation, ie, OGRA Ordinance. Therefore amendment to OGRA Ordinance will be appropriate to regulate this activity. Further, keeping in view the economic considerations, only rational, prudent and unavoidable costs should form part of RLNG prices so that unnecessary burden should not be passed on to the end consumers and the prices are kept within reasonable limits in comparison to the alternate fuels, so as to remain viable to produce cheaper electricity and/or other products.
OGRA commented on "LNG DES Price" said that "take or pay volumes, losses on account of net sale proceeds" were not included under this head earlier approved by the ECC. The same have now been added without mentioning its basis. Therefore, MP&NR is required to elaborate the nature of such expenses along with rationale and this cost should not he recovered from the end consumer."
The regulator which remains dysfunctional argued that import of LNG is being handled by federal government. Accordingly, LNG DES price including take or pay volumes, losses on account of net sale proceeds and relevant adjustments due to exchange rate forming the DES price may be provided by the federal govt. for inclusion in monthly price computation. This will require specific pricing methodology and comprehensive mechanism to ensure transparency in the entire LNG procurement process. In this case, Take or Pay component is the responsibility of the defaulter which should be accounted for separately and may not be treated as part of LNG DES price.
Commenting on margin, OGRA stated that PSO's margin of 4 percent of LNG DES price is on higher side since it approximately computes to over Rs 40 per mmbtu (assuming DES price at US $ 10/mmbtu) which will consequently impact on the public at large, more specifically the electricity consumers. Further, no rationale has been provided for allowing such margin to PSO and that too in dollar terms linked with DES price. This linkage, without any additional cost, will result into automatic increase under this head in view of LNG market volatility.
Further, LNG import is not PSO's prime and exclusive business activity rather it is just facilitating the LNG arrangement without any quantifiable risk and cost on its part. OGRA therefore suggests that reasonable cost under this head be recovered on actual basis in rupees per mmbtu term. RLNG consumer may not be un-necessarily burdened. SSGCL/SNGPL cost of service to be determined by OGRA based on estimated/ actual cost of service determined by it under section 8 for the relevant year, which will be bifurcated by the gas companies in terms of Transmission & Distribution activity separately and this will provisionally be included in RLNG price of the respective category of the consumer. The mechanism for adjustment of the estimates based on the actual result will be incorporated when the same is finalized by OGRA.
SSGCL/SNGPL administrative margin $0.05/ mmbtu for each company to be treated as operating income and be fixed on rational basis in rupee terms, which on the latest conversion rate works out to Rs 5.09 per mmbtu. On losses, OGRA said that the percentage transmission loss up to 0.5 percent or actual incurred by the company, whichever is less and distribution losses, if any, as allowed by the authority may he applicable.
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