The Oil and Gas Regulatory Authority (OGRA) has determined price of the Liquefied Natural Gas (LNG) delivered on ex-ship (DES) basis as $ 8.99 MMBTU without the inclusion of the general sales tax.
The decision was made in a review petition of the provisional LNG price filed by the stated-owned Pakistan State Oil (PSO), Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL).
In its decision, the OGRA noted that all the matters relating to LNG were decided at the Economic Coordination Committee (ECC) of the cabinet. These decisions should be ratified by the cabinet and federal government. All issues relating to RLNG should be governed under one set of laws – OGRA Ordinance.
The OGRA has determined a provisional LNG price of $ 8.63 without GST in October last year. The authority has set a profit margin of 1.8 per cent for the PSO against the claimed 4 per cent, while it disallowed all other claimed administrative and services charges. On instruction from the government, the PSO and both the Sui gas companies had filed review petitions. The PSO had claimed that one third of its total business portfolio of Rs 880 million is allocated to LNG business. It said the common administrative expenses were of Rs 2.3 billion. The company wanted to fix its profit margin to four per cent.
However, the Authority observed in its order that the PSO was not taking any risk in LNG business as LCs were established in advance. Any liability on account of take or pay basis is hedged through back-to-back agreements.
The authority rejected the PSO’s plea of oil marketing companies’ (OMC’s) margin of four percent as irrelevant noting that OMCs have to develop huge infrastructure and supply chain. It said the PSO calculated margin on hypothetical figures and no working on the basis of actual figures was submitted for consideration of the Authority.
The OGRA allowed increasing the PSO margin of 2.5 per cent on DES price from the previous level of 1.8 per cent. However, it noted that the company will have to provide actual expenses and taxes paid in last 12 months.
The Authority disallowed administrative margin sought by the Sui gas companies for the supply of LNG. Similarly, it disallowed the cost of service for the RLNG. The OGRA said that margin was built in the price of a commodity to cover overhead costs. The RLNG has no overhead cost as it will be supplied to the existing consumers. The companies are already getting cost of service for supplying gas.
The OGRA maintained terminal charges of $ 0.66 MMBTU. However, the authority disallowed inclusion of gas infrastructure cess as part of price of LNG till final decision was made by the government. The Authority noted that a number of legal and constitutional issues were raised at the public hearings on the LNG. These issues have been forwarded to the federal government for consideration and advice. The OGRA has asked the federal government to ensure commercial prudence and transparency in LNG procurement and that the terminal should be utilised optimally.
