ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has directed SNGPL to abandon LPG air mix plants at three locations, ie, Drosh, Ayun and Chitral Town, and get rid of the land and equipment with minimal loss possible through an open transparent process, official sources told Business Recorder.
Sources said the Petroleum Division submitted a summary to the ECC on March 18, 2020 containing the following proposals: (a) to proceed with the installation of LPG air mix plants, government of Pakistan needs to provide substantial subsidies, or earlier decisions of the ECC may be revisited with respect to the installation of cost-intensive LPG Air Mix Plant in the territories of "SSGCL and SNGPL and the projects be shelved excluding the projects which have been commissioned or near completion - (Awaran & Bella) in SSGCL'S territory and four (Gilgit, Drosh, Ayun & Chitral Town) in SNGPL's territory; (ii) cancellation of FCC's decision of April 12, 2018, to allow SSGCL to re-allocate Rs 14.80 billion back to its account as originally this loan was arranged by the Company on the strength of its balance sheet; (iii) private sector would be free to set up LPG Air Mix Plants on commercial basis at their own cost subject to meeting all codal formalities and; (iv) LPG use to be enabled by increasing LPG access/distribution in the areas designated for air mix plant.
Petroleum Division stated that the ECC in its meeting March 28, 2020 decided as under: (i) to shelve installation of all LPG Air Mix Plants. (approved earlier by the ECC), on which work has-not started as yet excluding two already commissioned plants at Awaran and Bella and a plant near completion at Gilgit and; (ii) ECC also directed the Petroleum Division to submit a proposal in consultation with Government of Balochistan for cost effective provision of LPG for the backward areas of Balochistan to the ECC for consideration.
Petroleum Division further stated that the ECC decision to shelve remaining plants, only covered the proposal partly whereas the rest of the proposals were unattended. The ECC decision was forwarded to SNGPL and SSGCL for compliance. However, SNGPL had reported (i) LPG air mix plant equipment is available with the Company for Drosh, Ayun and Chitral projects and land at these locations has already been acquired. The Company has also obtained construction licences for Drosh and Ayun projects from Ogra whereas construction licence in Chitral is expected to be issued soon; (ii) The Company has already incurred, expenditure to the tune of Rs 500 million for the LPG air mix projects at Drosh, Ayun and Chitral and is facing audit paras in Departmental Accounts Committee (DAC) and Public Accounts Committee (PAC) due to blockage of funds for the already procured equipment; (iii) the recent decision of the ECC is silent on the installation of LPG air mix plants at Drosh, Ayun and Chitral for which the Company has already started work and made significant progress and; (iv) Company has sought clarification whether to proceed with the installation of LPG Air Mix projects of Drosh, Ayun and Chitral or otherwise it will result in substantial financial loss to the company.
Petroleum Division apprised that financial feasibility report for installation of LPG air mix plants at three localities (Drosh, Ayun and Chitral Town) was obtained afresh from SNGPL. According to SNGPL, a total of Rs 1.481 billion would be required as a capital cost out of which an amount of Rs 500 million had already been spent. For operation of these three plants the subsidy required would be Rs 508 million per annum in FY 2020-21, with an increasing trend due to addition of new consumers and may reach Rs 1.210 billion per annum by FY 2030-31. Such a subsidy would be borne by natural gas consumers through WACOG. Regarding the second part of the ECC's decision of March 26, 2020, Cabinet Committee on Energy (CCoE) had constituted a Committee under chairmanship of Deputy Chairman, Planning Commission.
First meeting of the Committee was held on July 1, 2020. The recommendations of the Committee were to be submitted to CCoE for consideration. In the light of the ECC decision of March26, 2020, SNGPL can either dispose off the purchased equipment, which would entail a loss or it can complete these three plants but in such a case the subsidy needed would have to be provided for. The risk of providing this subsidy through WACOG, ie, loading the cost on consumers, was that it would open the door for continuation of such schemes in the future. Further if RLNG price was ring fenced, the justification of passing this additional cost to all consumers was not present, since there was no true WACOG system of pricing. The Petroleum Division submitted the following recommendations for consideration of the ECC: (i) such subsidy be adjusted from royalty to the respective provincial share from Petroleum; or this subsidy be adjusted in the existing revenue requirement and Ogra be advised accordingly, but with a clear decision that no further LPG air mix plants will be installed; or (ii) SNGPL be instructed to abandon the projects (Drosh, Ayun and Chitral Town), and dispose off the land and equipment with minimal loss possible through an open transparent process.
After discussion, the ECC decided that SNGPL be instructed to abandon the projects (Drosh, Ayun and Chitral Town), and dispose off the land and equipment with minimal loss possible through an open transparent process.
Copyright Business Recorder, 2021
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