RLNG co-mingling study: PD withdraws proposal from ECC

The Petroleum Division has withdrawn its proposal from the Economic Coordination Committee (ECC) to conduct a technical study on the impact of co-mingling high GCL RLNG/gas in the system for further improvement, official sources told Business Recorder.

In the backdrop of swapping of natural gas to M/s SNGPL in lieu of RLNG imported/injected into M/s SSGCL system due to unavailability of dedicated 1200 MMCFD capacity RLNG pipeline (due to non-issuance of Right of Way notifications by the local administration under the Provincial Land Acquisition Act), reduced off-take by Power Division and management of winter gas load-shedding by injection of RLNG for use by the domestic consumers in SNGPL's franchise area, the ECC in its meeting held on May 11, 2018 considered the summary submitted by the Petroleum Division and took the following decisions: (i) M/s SSGC may be allowed UFC based on RLNG handling basis (volumetric basis) in the sale purchase RLNG in the form of distribution loss due to swapping arrangements and consumption of RLNG in its franchise area which states "distribution loss to be determined and charged at actual including the losses due to swapping arrangements and consumption of RLNG in SSGC franchise area (determined on volume handled basis i.e. metered system gas in and metered system gas out); the said loss for the customers located on high pressure transmission lines as well as those customers who are willing to lay their dedicated line from SMS/TBS at their own cost shall be determined and charged at actual. However, for other customers on distribution lines an actual average UFG for the last financial year will be taken in determination"; (ii) M/s SNGPL and SSGCL be allowed to manage gas load on their system through RLNG-system gas swap mechanism for which necessary provision of volumetric adjustment and financial impact may be made on cost neutral basis in the sale price of RLNG on a multi-year and ongoing basis through setting up of a deferral account by OGRA; and (iii) Cabinet Division in consultation with OGRA may process the amendment in OGRA Ordinance, 2002 to cover the entire LNG/RLNG supply chain in its regulatory framework, ie, from licencing to pricing of RLNG.

The ECC also decided that OGRA can come back to the government in case it has also initiated the implementation of the decision.

According to Petroleum Division so far OGRA is implementing those guidelines where Cabinet Division has also imitated the implementation of guidelines.

Pursuant to the guidelines, OGRA was required to take into account the technical and financial impact to be recovered from RLNG consumers until such time the dedicated RLNG pipelines is fully operational and has no gas swap arrangement in place in lieu of injection of RLNG in M/s SSGCL system so as to avoid recurrence of this phenomenon.

The sources said, as the ECC approved policy guidelines, OGRA has determined the sale price of RLNG on monthly basis whereas M/s PSO is notifying it. The pricing of RLNG is ring-fenced activity under Petroleum Product (Petroleum Levy) Ordinance, 1961 and as such all the cost of supply of RLNG is recoverable from RLNG consumers/buyers. OGRA determines the weighted average sale price of RLNG for the LNG imported by M/s PSO and M/s PLL.

The sources said, the flow of RLNG from first LNG terminal of M/s EETPL commenced in end March 2015, however, necessary infrastructure was non-existent at the time to transmit the RLNG from port Qasim, Karachi to Lahore, where intended consumption centres are located. Accordingly, keeping in view this operational constraint at the time, it was decided that for the time being to utilize the existing volume swapping capacity of the transmission and distribution network of both the Sui companies whereby imported RLNG is to be utilized within Sindh and equivalent energy units of indigenous gas are transferred to M/s SNGPL by M/s SSGCL from various indigenous gas fields. Meanwhile it was decided to construct a dedicated 1200 MMCFD capacity pipeline with a length of 1100 kms to transport RLNG from Port Qasim up to Lahore.

The project was conceived in two phases i.e. RLNG-1 and RLNG-II. Both the companies raised financing for the RLNG-1 phase respectively whereas the government provided sovereign guarantee against commercial borrowing for undertaking the RNLG-II phase of the project. The entire pipeline was required to be completed and commissioned by the end of December, 2016. However, a portion of 42" x400 meters (Jamshoro) out of 340 km project of SSGCL's franchise area was put on halt which belonged to a sitting Provincial Minister who was unwilling and reluctant to permit the pipeline construction activities to take a place within the boundaries of his land. However, lately, in September, 2018 SSGCL completed the remaining segment and line was fully commissioned. But swapping continues to remain an operational/ circumstantial constrain of M/s SSGCL for retaining certain amounts of RLNG due to the following reasons ;(i) non-issuance of ROW notifications by the Provincial Administration for laying of 30x125 km pipeline for bringing indigenous gas back to Karachi from the indigenous gas fields namely Naimal Basal, Kausar, Gambat South and KPD. Thus limiting SSGCL's ability to meet gas demand of Karachi and its surroundings for supply to its costumers including K-Electric and for operational system use; and (ii) reduction of RLNG off-take by power plant in SNGPLs' franchise area and consequent reduction of in-take of RLNG by SNGPL in its system.

Petroleum Ministry, LNG terminal, ie, M/s EETPL and M/s Gas Port Pakistan are operational with the government contracted total terminal capacity of 1200 MMCFD. Most of imported RLNG is transmitted through dedicated RLNG pipeline to M/s SNGPL, however, some portion is retained and consumed in M/s SSGCL system which is to be swapped with indigenous gas.

Before commissioning of dedicated RLNG pipeline, M/s SSGCL was fully consuming all RLNG into its distribution network at Karachi and was diverting indigenous gas to M/s SNGPL in lieu thereof. Due to difference of Gross Calorific Value (GCV)/heating value and specific gravity of the RLNG and indigenous gas, the combined utilization of gas within the M/s SSGCL system resulted into high Unaccounted For Gas (UFG) specifically in Karachi region and this inflicted financial burden on SSGCL due to non recovery of the impact.

OGRA's inaction in not allowing UFG either in RLNG price or in indigenous gas operations will have overarching impact on the financial health of SSGCL as it will end up with negative equity in its financials of 2017-18. M/s SSGCL has claimed an amount of Rs 12 billion up to FY 2017-18 in the determination of EFF of 2017-18 and on the other hand M/s SSGCL has so far offered Rs 15.566 billion by the end of 2017-18 to its indigenous gas customers tariff as an additional revenue it earned by selling co-mingled higher GCV gas to its customers. But due to ring-fenced nature of both indigenous gas pricing and RLNG pricing, OGRA could not account for the additional revenue of SSGCL against the impact of UFG due to injection of RLNG. The matter has been discussed with OGRA in various meetings chaired by the Minister for Petroleum, SAPM on Petroleum and Secretary Petroleum during June and July, 2019 but OGRA brought forward its consistent stance that an independent technical study would be required to conclude the matter and till such time the study is finalized, OGRA will not consider any allowance whatsoever in the price of RLNG on in indigenous gas sales operations of SSGCL.

Petroleum Division submitted the following proposals for consideration of ECC of the Cabinet: it proposed that OGRA will conduct technical study on the impact of co-mingling of high GCV RLNG/gas in the system within six months of the decision. The study will be funded by SSGCL. OGRA would implement the ECC guidelines conveyed of May 11, 2018 and provide due allowance to SSGCL's impact in the monthly RLNG pricing for the recovery in a staggered manner considering the least impact on RLNG sale price.

OR

In order to avoid occurrence of Negative Equity of SSGCL being a public sector company, OGRA will consider additional revenue offered by SSGCL against the sale of co-mingled gas for offsetting/adjusting against the RLNG volume handling impact on ad hoc/provisional basis in the determination of FRR 2017-18. OGRA shall have the right for any adjustment in the upcoming determinations for FY 2018-19 onwards based on the results of the said study.