ECC may approve up to 26.31pc hike in LPG air mix prices

MUSHTAQ GHUMMAN

ISLAMABAD: The Eco-nomic Coordination Committee (ECC) of the Cabinet is likely to approve on Tuesday (today) an increase of up to 26.31 percent in current prices of LPG air mix, official sources told Business Recorder.

The ECC while considering a summary of Petroleum Ministry two months earlier on “policy guidelines on LPG air mix, CNG or LNG based pipeline distribution projects undertaken by Sui Northern Gas Pipelines Limited and Sui Southern Gas Company Limited,” approved, in principle, and constituted a committee, comprising Minister for Petroleum & Natural Resources (Convener), Minister for Water & Power, Deputy Chairman Planning Commission and Secretaries, Economic Affairs & Petroleum & Natural Resources Division for (i) working out the mechanism for air mix of LPG in the system by ensuring transparency; and (ii) determining pricing formula based on lowest cost and its impact on consumer price.

A meeting of the committee was held on April 27, 2012 in the Ministry of Petroleum & Natural Resources under the chairmanship of Minister for Petroleum & Natural Resources. The meeting was attended by the Member (Energy) Planning Commission and representatives of Sui Southern Gas Company Ltd (SSCGL) and Sui Northern Gas Pipelines Ltd (SNGPL).

The matter of injection of LPG air mix in the system was discussed at length and being an operational issue it was decided that both the gas utilities will work out the modalities for injection of the LPG air mix in the system to supply the same to selected industrial and power consumers while ensuring that liquid condensation issues do not affect the system.

The matter of pricing formula for LPG air mix and its impact was also discussed. Keeping in view the proposal made in the summary for inclusion of cost of LPG air mix in Weighted Average Cost of Gas (WACOG), being determined by Ogra in Estimated Revenue Requirement (ERR) of the companies, it was decided that Ogra would calculate the cost of LPG Air Mix and its impact on the existing/new consumers of gas utilities with the objective that minimum impact will be passed on to the domestic and commercial consumers, while the maximum impact will be passed on to industrial and power sector consumers who will also be the primary beneficiaries.

The impact of the LPG air mix on consumer prices would be approx. 1.84 to 26.31% higher of current prices depending on the volume of air mix but is expected to decrease substantially due to the recurring summer fall in LPG prices as per the following illustration:

Rs/mmbtu

LPG Air Mix       Resultant WACOG   Increase    Increase % age

volume

10 MMCFD    314.62      5.67  1.84

50 MMCFD    336.81      27.86 9.02

100 MMCFD   364.51      55.56 17.98

150 MMCFD   392.21      83.26 26.95

It was also decided in the meeting that supply of LPG for LPG air mix projects will be ensured through open bidding while Ogra would be entrusted to determine the cost of LPG as well as WACOG on monthly basis.

Retail tariff applicable in case of these projects will be the same as that of natural gas being supplied to various categories of consumers through existing transmission and distribution network.

All expenditure incurred on installing, maintaining and operating these projects including cost of gas shall be included as permissible expenditure in the revenue requirements of the respective gas companies.

The gas utilities will ensure prudence in all such expenditures to the satisfaction of the Regulatory Authority and also ensure ring fencing of all capital and revenue expenditures, including all cost allocations in respect of each such project.

SSGCL and SNGPL will be entitled to a rate of return equal to the rate of return applicable for gas operations.

Ogra will include the cost of LPG air mix in uniform cost of gas formula in order to compute the WACOG. Further, Ogra would be entrusted to determine the cost of LPG as well as WACOG on a monthly basis.