ISLAMABAD: The Oil and Gas Regulatory Authority (Ogra) has proposed to the government to rationalise tariffs of indigenous gas and RLNG in the wake of recent amendments to the OGRA Ordinance, 2002, as there is a massive difference in the actual cost of gas and the consumer sale prices of the gas companies, which is leading to massive cross-subsidy, well-informed sources told Business Recorder.
The gas regulator has offered these comments on a draft summary of Petroleum Division for the Cabinet Committee on Energy (CCoE), in which the latter has proposed ban on issuance of demand notices on new connections due to non-availability of indigenous gas resources.
Sharing the background of proposal, the Petroleum Division has explained that the past the government grants/funds were provided from various programs initiated from time to time under different titles, ie, Khushhal Pakistan Programme (KPP), Peoples Works Program (PWP). Millennium Development Goals (MDGS), Sustainable Development Goals Program (SDGs) and Sustainable Development Goals Achievement Program (SAP). These programs like KPP and PWP remained part of PSDP portfolio until 2013.
Thereafter, approval of schemes and required funding were allocated at the discretion of the Prime Minister out of PSDP savings. Later, since April, 2017, the allocation of funds was made in the portfolio of Cabinet Division under Millennium Development Goals (MDGs), Sustainable Development Goals Program (SDGs) and Sustainable Development Goals Achievement Program (SAP).
Determination of ERR, PERR: Ogra refuses to include cost of RLNG diversion
In order to address the shortage of gas, the government in November 2009 imposed moratorium on new gas development schemes till the clearance of backlog and exemption was only given to the gas producing districts. The moratorium was lifted by the government on April 12, 2017.
During the period of 2018 to 2022, the Steering Committee of SAP and Sub-Committee of the SAP approved a number of gas development schemes along with release of funds.
The Ogra through its two separate decisions on Estimated Revenue Requirement for FY 2021-22 and for FY 2022-23 has principally allowed SNGPL to undertake ongoing schemes assigning priority to all such schemes which are more than 50 per cent complete, starting from year 2011 subject to following; (i) SNGPL shall ensure that addition of new gas connections/development schemes shall not further affect the security of and continuity of gas supplies to existing consumers and arrange sufficient additional gas supplies for new connections; (ii) SNGPL shall ensure that addition of new gas connections/development schemes shall have no adverse and financial impact on existing consumers.
The completion of all these schemes required funds of Rs47.9 billion comprising of GoP share of Rs7.9 billion and company share of Rs39.99 billion. The cost incurred by gas companies on gas development schemes as Distribution Development Budget forms part of the annual revenue requirements of the gas companies for ultimate recovery from the gas consumers.
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 Rs547 billion (SSGCL: Rs245 billion, SNGPL: Rs301 billion) as of March 2022.
In addition to gas development schemes, companies have been providing domestic connection based on annual target provided by OGRA. The pending development schemes would entail additional gas load of 172 mmcfd and pending connections would entail an additional gas load of 92 mmcfd in winters.
Considering depletion of natural gas, replacement of it by RLNG and present distortion in domestic consumer pricing. It does not appear viable to develop new schemes, provide new connections or provide RLNG to domestic consumers unless pricing structure is brought to level of full cost recovery or alternately government funds the differential of tariff as subsidy.
The gas companies are, therefore, neither able to recover their investment, earn any return on that investment nor have sufficient gas to provide to the new and potential consumers. The average both the gas companies, ie, SSGCL and SNGPL are facing average depletion of five per cent and 19 per cent respectively.
In addition to gas development schemes, companies have been providing domestic connection based on annual target by Ogra. The pending development schemes would entail additional gas load of 172 MMCFD and pending connections would entail an additional gas load of 92 MMCFD in winter. Considering depletion of natural gas, replacement of it with RLNG and present distortion in domestic consumers unless pricing structure is brought to level of full cost recovery or alternatively government funds the differential of tariff as subsidy.
Copyright Business Recorder, 2022