Government planning to favour bulk consumers: domestic sector to pay higher LNG price

The government is planning to favour bulk consumers and power sector by allowing weighted average cost of imported LNG that would result in higher domestic sector gas prices, it was learnt.
Sources said that the Planning Commission had reportedly expressed concern over the proposed pricing of LNG based on weighted average cost of gas (WACOG), saying that it would result in increase in corresponding increase in the existing gas price and it would be passed on to domestic consumers.
The Ministry of Petroleum proposed that the cost of imported LNG would be factored in the weighted average cost of gas and impact of required increase in gas prices would be passed on to all consumers, including the domestic sector.
The Planning Commission reportedly stated that imported LNG should be largely dedicated to the power sector and bulk consumers so that the ensuing gas price hike effect on domestic and general consumers was diluted.
The Petroleum Ministry argued that the domestic sector gas prices were heavily subsidised and if the entire impact of imported LNG was passed on to the power sector and bulk consumers, as suggested by the Planning Commission, the relative subsidy to the domestic sector would further increase.
The Ministry stated that if the entire burden was passed on to the power sector, it would lead to an increase electricity tariff for consumers. The Ministry''s reply to the Planning Commission suggestion for dedication of LNG to bulk consumers was that the bulk consumers, especially industrial and fertiliser sectors, would face significant commercial disadvantages, if these were charged disproportionate share of the increase in gas prices.
The Planning Commission said to have suggested keeping the imported LNG at less than imported furnace, saying that it should not exceed 80% of the imported furnace oil price at BTU parity and wanted that Petroleum Ministry proposal for providing government guarantees only for the public sector companies be cautiously reconsidered. Three private sector companies have already obtained construction license from Oil and Gas Regulator Authority (Ogra) for setting up LNG terminals and have also dedicated allocation capacities in the pipeline network. However, because of a lack of adequate guarantees in the presence of huge circular debt, their projects implementation is facing protracted delays.
However, Petroleum Ministry response was that the acceptable ceiling of LNG price could be considered after award approval of award of contract by the Economic Co-ordination Committee (ECC) keeping in view the prevailing market conditions.
About government guarantee, the Ministry reportedly maintained that the proposal of providing government guarantee was being considered only in case of purchase of RLNG by public sector companies, as government''s designated buyers. No guarantee will be provided for private sector LNG import projects. The Ministry further stated that there was no restriction on import of LNG by private parties. However, the private sector had not been able to bring in LNG since last several years and it was, therefore, felt imperative that the public sector should play its due role to bridge the widening energy demand supply gap and to arrange energy at affordable prices.
With a view to exploring all possible avenues, the Ministry stated it was contemplating to pursue LNG import project under various transaction structures. However, final decision will be taken on the basis of best available recourse with the approval of the ECC, at the time of award of the contract.