Petroleum ministry seeks revision in price criteria

Estimating that consumers were burdened with an enormous cost of Rs20 billion for new natural gas supply schemes, ministry of petroleum has moved a summary for consideration of Economic Coordination Committee (ECC) requesting either restoring the old criteria or providing soft loans at five per cent markup to utility companies for new projects.
Petroleum minister Dr Asim Hussain confirmed that two summaries have been forwarded to ECC for changing price criteria for new gas supply schemes and for changing price structure for LPG Air Mix to meet up rising demand of LPG in the country.
According to details, ministry decided to seek amendment in the existing gas supply price criteria, which was notified in 2008 to bring the two state owned gas utility companies out of financial burden to undertake new projects. SSGC and SNGPL are eligible for a return on assets of 17 and 17.5 per cent respectively as determined by Oil and Gas Regulatory Authority (OGRA).
New criteria enhanced the consumer cost by 2.7 times, while change in assuming consumer base from 30 per cent to 60 per cent increased the cost criteria by 5.4 times. The criteria was revised by enhancing the per consumer cost from Rs20,000 to Rs54000 for 13.5 km pipeline radius from gas fields in Punjab and Sindh, Rs40,000 to Rs108,000 for 27 km radius in Khyber Pukhtoonkhwa and Rs100,000 to Rs270,000 for 67.5 km radius in Balochistan.
The decision cased an impact of Rs34.3 billion on SNGPL and Rs7.5 billion on SSGC. Share of SNGPL under the old criteria would have been Rs6.6 billion and SSGC Rs1.3 billion. This would have saved the consumers of financial burden of Rs17.5 billion in case of SNGPL and Rs2.8 billion in case of SSGC. This caused an increase of 28 per cent in gas prices which was borne by the consumers.
Increase in cost required gas utility companies to borrow funds to continue financing the ongoing capital expenditure, as OGRA determined operating cost did not include financial charges incurred on interests of 16 per cent. Due to which utilities had no incentive to launch new projects.
Currently SNGPL is working on 2900 new development schemes worth Rs33 billion, which are 46 per cent complete while SSGC is working on 944 schemes worth Rs7.8 billion which are 76 per cent complete. New schemes will cause an additional burden of 694 mmcfd on SNGPL system and 15 mmcfd on SSGC system. SNGPL would provide gas to 1.7 million new consumers and SSGC to 65,280 new consumers.
LPG Air Mix: In a separate summary, Petroleum Ministry has sought inclusion of cost of LPG air mix in the uniform cost of gas formula determined by OGRA in the weighted average cost of gas (WACOG). At present the guidelines are applicable for stand alone distribution projects for the supply of LPG Air Mix, LNG and CNG. Currently SSGC is supply LPG Air Mix to Gwadar and Noshki in Balochistan and Kot Ghulam Mohammad in Sindh.
Gas utility companies want to extend supply to new areas which was only possible if OGRA includes cost of LPG air mix in WACOG, which the ministry estimates to cost Rs308.95 per mmBTU. However, the guidelines do not allow feasibility for new projects without the specific directions of the president, prime minister, cabinet or ECC.