The government has not yet reached consensus over the period for gas prices fixation--bi-annual or quarterly--as the Economic Co-ordination Committee (ECC) of Cabinet in its previous meeting had agreed just to constitute a committee, sources in Petroleum Ministry told Business Recorder here on Tuesday.
The Finance Ministry in its press release on April 13, 2009 had given the impression that the ECC has decided to fix gas prices on quarterly basis, instead of bi-annual basis, but in fact things were not as simple as they looked, sources said.
They said that the ECC had discussed the issue in detail and had constituted a committee under the chairmanship of Advisor to Prime Minister on Petroleum, Dr Asim Hussain, with Ministers of Kashmir Affairs and Privatisation and Secretaries of Finance, Petroleum, Planning and Revenue Divisions.
The committee will draft its recommendation in a day or two and submit to the ECC for decision. Giving details, sources said that the ECC over the summary of Ministry of Petroleum on January 9, 2009 had decided that the relevant Ministry would submit monthly and quarterly review of gas prices to ECC.
They said that gas companies, Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGC) are engaged in gas purchase from exploration and production (E&P) companies and its transmission, distribution and sale to various categories of consumers.
Gas companies are operating on cost plus guaranteed return on assets formulae under license from Oil and Gas Regulatory Authority (Ogra). As per recent determination of revenue requirements of the two gas utility companies, 88 percent of total revenue requirements are on account of cost of gas, which these companies have to pay to the gas producers.
The producers'' gas prices are linked to international oil prices, in accordance with gas price agreements (GPAs), gas sales agreements (GSAs), and petroleum concession agreements (PCAs) signed between GoP and the gas producers, and are determined by Ogra biannually (ie on 1st January and 1st July every year), on the basis of average published international data on oil prices for first six months of last seven months along-with applicable discounts.
Petroleum Ministry claims that this practice of determining producer gas prices on bi-annual basis neutralised the abrupt changes in oil prices in international market and also provides Ogra sufficient time to complete its procedures in determination of revenue requirements of gas companies.
The Ministry further argued that to determine/review gas prices on monthly/quarterly basis, Ogra will have to take into account the producers'' (wellhead) prices which are directly linked to international oil price, to incorporate / reflect the rapid changes/ volatility in international prices and exchange rate fluctuations.
In this way, gas consumers will experience rapid (frequent) changes in gas prices which will create confusion due to time lag involved in generation of bills. In addition, it will require amendments in a large number of GPAs, PCAs and other applicable documents.
The PCAs and GPAs have a stability clause which cannot be changed unilaterally, the sources quoted the Ministry as saying. According to the Ministry, though Ogra Ordinance is not within the purview of the MPNR, it is understood that the same will also require to be amended for monthly / quarterly reviews. Keeping in view the circumstances, Petroleum Ministry is resisting any change in existing gas prices fixation period of six months.