The All Pakistan CNG Association (APCNGA) has rejected the perception that Memorandum of Understanding (MoU) signed between CNG body and the Petroleum Ministry was aimed at regulating the CNG sector. Ghiyas Abdullah Paracha, Chairman Supreme Council (APCNGA) talking to journalists said the Memorandum of Understanding (MoU) was just a price notification and not an agreement of creating a cartel.
He added CNG association was not involved in that agreement instead on August 25, 2008 the government drafted the MoU as well as mechanism for CNG price fixation. Paracha while stating the reason behind the MoU said that then Minister for Petroleum on a question of reporters mistakenly quoted CNG price as Rs 55 per kg against Rs 45 per kg. To protect the minister from humiliation, the petroleum ministry officials prepared the MoU.
The CNG sale price has eight components: (i) well-head price of natural gas; (ii) operating expenses of Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGC); (iii) 17.5 percent fixed profit of SNGPL and SSGC on the value of their fixed operating assets; (iv) federal government's development surcharge; (v) general sales tax at the rate of 25 percent; (vi) gas infrastructure development cess; (vii) operating cost of CNG stations; and (viii) profit of CNG stations.
It is the last two components that the present CNG price debate is all about and the sensible interpretation of the law is that Ogra has no authority to determine the price of these components. Up until 2008, these components of the gas price were for the CNG stations to determine.
That allowed for competition in the market and created room for CNG stations to enhance efficiency and offer better prices to consumers. By fixing the operating costs of CNG stations and their profits, Ogra and the federal government began regulating the CNG industry in 2009 - added inefficiency to the market - eliminated competition and accorded windfall profits to CNG stations.
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