ISLAMABAD: The Petroleum Division has reportedly proposed a massive increase in price of natural gas across-the-board except lifeline consumers with reduction in slabs from seven to five, to be effective from July 1, 2022, sources close to the Petroleum Minister told Business Recorder.
Two public sector gas utility companies, ie, Sui Southern Gas Company Ltd (SSGCL) and Sui Northern Gas Pipelines Ltd (SNGPL) under license from Oil & Gas Regulatory Authority (Ogra) are engaged in purchase, transmission, distribution and sale of gas to various categories of consumers in the country, excluding consumers located on dedicated networks.
Ogra is empowered to determine annual revenue requirements of the two companies, on the basis of petitions filed by these companies, in accordance with the respective license conditions, Natural Gas Tariff Rules 2002 and Section 8 of the OGRA Ordinance 2002.
The process of filing of petitions for the determination of Estimated Revenue Requirement (ERR) for a new financial year starts in the third quarter of the financial year, followed by public hearings and OGRA decision in fourth quarter of the year, which is then referred to the Federal Government for advice in terms of category wise consumer sale prices.
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Under section 8(3) of the OGRA Ordinance, 2002 such advice has to be provided within 40 days of the decision.
The Ogra issued its determination of Estimated Revenue Requirements for FY 2022-23 on June 3, 2022 for both SNGPL and SSGC. According to the determination SNGPL requires a revenue of Rs261 billion and SSGCL requires a revenue of Rs285 billion in FY 2022-23.
The Ogra has not allowed previous year revenue shortfall of Rs.265 and Rs. 245 billion for SNGPL and SSGC respectively. This disallowance would result in continuation of the stock of circular debt in future.
The recovery from consumers is based on Ogra notified tariffs for various categories and slabs of consumers. Such notification is issued by Ogra based on the advice of the Federal Government. The category wise consumer gas sale prices/tariff for natural gas reflects various socio-economic policies of the Federal Government, including supply of cheap fuel to households, control of fertilizer prices and promotion of exports.
Full cost recovery from end consumers has not been possible from time to time because consumer gas prices were not revised in line with revenue requirements determined by Ogra.
Since FY 2015-16, the consumer gas prices were not adequately revised consistent with revenue requirements determined by OGRA. This resulted in accumulation of revenue shortfall/tariff differential amounting to Rs. 547 billion (SSGCL: Rs.245 billion, SNGPL: Rs.301 billion) as of March 2022. This is a major portion of the gas sector circular debt of Rs. 1.232 trillion.
Current consumer gas prices became effective in October, and if prices are kept unchanged, SNGPL and SSGCL would face a combined revenue shortfall of Rs. 165 billion during FY 2022-23, further increasing the circular debt and further straining the ability of the gas importing companies (PSO and PLL) and Exploration and Production Companies (OGDC, PLL, MPCL etc.) to sustain the supply chain and invest in exploration and production.
Section 8 (3) of the OGRA Ordinance, 2002 (as amended in March, 2022) (Annex) reads as follows:
“The Federal Government shall, within forty days of the advice referred in sun-section 1 and (2) advise the Authority of minimum charges and the sale price for each category of retail consumer for natural gas for notification in the official Gazette by the Authority of the prescribed price as determined in sub-sections (l) and (2), the minimum charges and the sale prices for each category of retail consumes of natural gas. The federal government shall ensure that the sale prices so advised are not less than the revenue requirement determined by the Authority.”
Foregoing in view, Petroleum Division after an analysis of the gas consumer categories, their respective consumption over the past financial year, the impact of change of price on various categories of consumers and the need to meet the revenue requirements of gas utility companies proposes following broad principles/parameters for revision of the category-wise consumer gas sale prices:
Domestic consumers: the existing slab structure is proposed to be revised to bring efficiency and progressivity in the provision of subsidy to the domestic consumers.
Following principles form the foundation of this proposal: (i) existing slab structure of 7 slabs is being revised into 5 slabs by consolidating last 2 existing slabs; (ii) slab up to 0.4 hm3 is proposed to be merged with slab up to 0.5 hm3 and the rate for the merged slab is proposed to be Rs. 173/mmbtu from Rs 121/mmbtu. There will be no minimum charge in the domestic category; (iii) no change has been proposed in the price for the slab up to I hm3. It will remain at Rs 300/mmbtu; (iv) the above (i) to (ii) will protect the poorest consumers; (v) preceding slab benefit has been proposed to be maintained up to consumption of 1 hm3. Beyond the threshold of 1 hm3, preceding slab benefit will be discontinued; (vi) the last 2 slabs with highest consumption i.e. consumption up to 3 hm3 and above representing the affluent consumers may pay closest to the average cost of RLNG. The proposed rate will be Rs1,856/mmbtu from existing Rs738/mmbtu (151 per cent increase); (vii) highest consumption slab may not be allowed the benefit of lower slabs; in order to ensure this, it has been proposed that if the consumption in any of the preceding eleven months and the billing month exceeds the level of 3 hm3, the rate of the highest slab will be applicable, ie, Rs 3,712/mmbtu existing rate up to Rs 1,460 (335 percent increase); This mechanism will be applied prospectively with effect from July 1, 2022 in such a manner that the number of preceding months for this calculation will increase from zero to eleven by June, 2023; and (viii) bulk consumers will be charged at the average price prescribed by Ogra.
Special Commercial (Roti Tandoor): It has been proposed to consolidate the slabs in this category of consumers because 95% consumers fall in the last slab of existing structure. The rates for the slab above 3 hm3 have been kept equal to the Average Prescribed Price of Ogra. On consumption levels below 3 hm3, the rate is kept at 50% of the said price. The rate for bulk will be Rs 928 / mmbtu from Rs 780/mmbtu and commercial. Special commercial (Roti Tandoor) Rs 928/mmbtu from RS 697 mmbtu.
Commercial consumers: a raise of 81% in existing price has been proposed from Rs 1,283/mmbtu to Rs 2,321/mmbtu, although the alternate fuel for commercial consumers is LPG, which is 4 times the cost of indigenous gas in terms of energy units, however, the proposed raise in price is still much lower than LPG price (58% of LPG price only).
General Industry (export & non-export): The export industry (erstwhile zero-rated industry) in Punjab is provided RLNG at subsidized rate of $ 6.5/mmbtu subject to provision of budgeted subsidy. For the next fiscal year, the amount of subsidy allocated for this purpose in the budget is Rs. 40 billion and Finance Division has advised that the rate charged to the export Industry in Punjab may be adjusted accordingly.
Consequently, the existing price of S6.5 /mmbtu has been proposed to be revised to S9/mmbtu. The non-export industry in Punjab is charged the full price of RLNG. On the basis of the above, for indigenous gas being provided to the industries in the other provinces following principles are proposed: (i) captive power and process consumers of non-export industry may be charged at Rs. 1,650/mmbtu from existing rate of Rs 1,87/mmbtu – ($ 8 mmbtu); and (ii) captive power units and process consumers of export industry may be charged at Rs. 1,450/mmbtu (USS 7/mmbtu).
The proposed rate for general industry (non-export) will be Rs 1,650/mmbtu from Rs 1,054/ mmbtu, export- Rs 1,450 mmbtu from Rs 819/mmbtu.
Fertilizer: The price of fertilizer feed did not witness much increase in the past because of its ultimate impact on farmers. The price has been proposed to be around 50% of the Average Prescribed Price whereas the price for fuel gas use has been proposed to be twice of Average Prescribed price, ie, Rs. 1,857/mmbtu.
The proposed new rates for feed (Engro) Rs 140/mmbtu from Rs 117/mmbtu, feed (others) Rs 430/mmbtu from Rs302/mmbtu. Fuel Rs 1,857/mmbtu from Rs 1,023/mmbtu.
Power: The most efficient plants with over 60% efficiency are operating on imported gas whereas scarce natural gas is being provided at much lower cost to the less efficient power plant. In order to encourage efficiency in the merit order while protecting the pass-on impact to consumer, the existing tariff has been proposed to be equated with Average Prescribed Price.
The new proposed rates for power are Rs 928/mmbtu from Rs 857/mmbtu: Liberty power-proposed rate Rs 2,406/mmbtu from Rs1,881/mmbtu.
CNG and Cement: In order to control the consumption of diminishing indigenous gas reserves, CNG and cement sector are lower on the merit order due to the overall consumptions and the fact that most of the CNG stations have shifted to RLNG. Similarly, most of the cement has shifted on alternate fuels or operating on RLNG, therefore, the price has been proposed to be set at Rs.2,321/mmbtu as compared to existing tariff which is 70% and 82% increase over existing CNG and cement price.
There is no change being proposed in the minimum charges of any of the consumer categories except domestic.
The proposed rise in gas tariff of various categories of consumers with effect from July 1, 2023 is expected to generate a revenue of Rs. 666 billion (SNGPL: Rs.331 billion, SSGCL: Rs. 335 billion) as against Ogra determined revenue of Rs. 546 billion. Considering the revision in consumer gas sale prices, the resultant surplus revenue estimated to be at Rs. 120 billion would be adjusted by OGRA in the review of prescribed prices of both the gas companies for recovery of prior years’ revenue shortfall respectively.
The proposed price increases for power and fertilizer consumers would also be applicable on similar consumers of Mari Petroleum Company Ltd and Pakistan Petroleum Ltd.
The Ogra may determine and notify the RLNG sale price under Section 43B of the OGRA Ordinance, 2002 based on the prevalent guidelines issued by the Government from time to time on “Sale Price of RLNG” for the RLNG consumers of SSGCL, SNGPL and PLL.
During the mid-year review of Estimated Revenue Requirement (ERR) for FY 2023, Ogra may include the cost of RLNG diversion in the determination of Review of Estimated Revenue Requirement (RERR).
Copyright Business Recorder, 2022