MUSHTAQ GHUMMAN

ISLAMABAD: Ministry of Petroleum and Natural Resources (MoP&NR) has prepared a gas tariff increase plan aimed at generating an additional Rs 77 billion from consumers of SNGPL and SSGCL in 2015-16, sources close to Petroleum Minister told Business Recorder.

Since Oil and Gas Regulatory Authority (Ogra) is dysfunctional, Petroleum Ministry readied the plan in accordance with an IMF agreement. The proposed gas sale price plan was presented before the federal cabinet on May 26, 2015 but it did not come under consideration, the sources added.

According to the proposal, the tariff of domestic consumers who use 100 units (3.55 MMBTU) per month and pay Rs 464 per month at a price of Rs 106 per MMBTU be increased to Rs 542 per month on the basis of Rs 125 per MMBTU. This implies that tariff for domestic consumers using 100 units per month will increase by Rs 78. Consumers who use 200 units (7.10 MMBTU) monthly were proposed to pay additional Rs 313 on the basis of new tariff of Rs 250 per MMBTU (current tariff of Rs 212 per MMBTU).

Tariff for consumers using up to 300 units (10.65 MMBTU) was proposed to be Rs 470 more on a monthly basis with their total bill increasing from Rs 2668 at present tariff of Rs 212 per MMBTU to Rs 3138 at proposed rate of Rs 250 per MMTBU.

According to the proposal, the tariff for consumers using 400 units (14.20 MMBTU) was to be increased by Rs 2,812 to Rs 11,651 from Rs 8839; up to 500 units (17.75 MMBTU) Rs 3,516 per month from Rs 11,043 at current rate of Rs 531 to Rs 14,558 at proposed rate of Rs 700 per MMBTU. Bills of consumers using 600 units (21.30 MMBTU) and up to 700 units (24.85 MMBTU) were envisaged to be increased by Rs 4,219 and Rs 4,922 per month, respectively.

Petroleum Ministry maintains that both gas utility companies, viz Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL) are engaged in gas purchase from Exploration and Production (E&P) Companies and transmission, distribution and sale thereof to various categories of consumers. They are operating on cost plus return on assets formulae under licenses from Oil and Gas Regulatory Authority (Ogra).

Historically, the gas sector has been performing without any direct subsidy from government as the entire cost of supply is passed on to consumers. However, gas is being supplied to domestic and fertilizer sectors at subsidized rates through a mechanism of cross-subsidization whereby the amount of subsidy is loaded on other sectors, the ministry claims.

The Ogra Ordinance 2002 empowers the authority to determine revenue requirements for gas utility companies. The last such determination was made by Ogra for FY 2014-15 in June-20l4. However, the gas sale prices were not revised due to administrative difficulties. Resultantly, gas utility companies are suffering substantial losses, as selling price is much below the cost of supply. Accumulated losses of SNGPL and SSGC by the end of current financial year would be Rs 34 billion and Rs 28 billion respectively. It may be mentioned that gas sale prices have not been revised since January 2013 except for a slight revision in price for captive power in August 2013.

Sources said, the current situation warrants immediate corrective action as the same would otherwise require injection of a subsidy by government to enable the gas utility companies to continue servicing their consumers and to timely complete pipeline and infrastructure augmentation projects.

The sources said, pending determination of revenue requirements by OGRA due to non-completion of quorum Ministry of Petroleum and Natural Resources (MPNR) has worked out an estimated revenue requirement for FY2015-16.

According to official documents, the cost of SNGPL gas will be Rs 155.1 billion and SSGCL’s Rs 155.8 billion with a total of Rs 310.9 billion. Unaccounted For Gas disallowance has been calculated at Rs 16.7 billion; of which the share of SNGPL will be Rs 8.9 billion and SSGCL’s Rs 7.4 billion. The cost of transmission and distribution will be Rs 60.7 billion, i.e., Rs 35.5 billion in SNGPL and Rs 60.7 billion SSGCL. Return on assets has been estimated at Rs 26.7 billion (SNGPL Rs 16 billion and SSGCL Rs 10.7 billion).

The documents further disclose that projected revenue shortfall in 2014-15 will be Rs 61.6 billion.

The total cost of gas in 2015-16 will be Rs 443.6 billion of which the share of SNGPL and SSGCL will be Rs 231.6 billion and Rs 212 billion, respectively .

After lessening of other income amounting to Rs 10.9 billion (SNGPL Rs 7.7 billion and SSGCL’s Rs 3.2 billion), net revenue requirement of SNGPL will be Rs 233.9 billion and SSGCL Rs 208.8 billion, totaling Rs 432.7 billion. Revenue at present sale price has been calculated at Rs 355.4 billion; of which the share of SNGPL is 177.1 billion and SSGCL ‘s Rs 178.3 billion, which implies that projected shortfall in revenue will be Rs 77.3 billion with SNGPL’s share Rs 46.8 billion and SSGCL’s Rs 30.5 billion.

With a view to meeting indicated revenue shortfall, Ministry of Petroleum and Natural Resources has worked out alternate proposals for revision in gas sale prices which is as follow:

The proposed tariff for domestic consumers using 100 MMTBU is Rs 125 per MMTBU against the current tariff of Rs 106 per MMTBU. Petroleum Ministry has proposed a tariff of Rs 250 per MMTBU for consumers using 300 MMBTU per month against the current rates of Rs 212 per MMBTU. Consumers using above 300 MMBTU in a month are proposed to pay Rs 700 or Rs 750 per MMBTU against current tariff of Rs 531 per MMBTU.

Petroleum Ministry has proposed Rs 743 per MMBTU as the first option and Rs 743 per MMBTU as second option and third option is Rs 750 against current tariff of Rs 743 per MMBTU for cement industry.

Options available to general industry will be Rs 600 per MMBTU (first option), 700 per MMBTU (second option) and Rs 750 per MMBTU (third option) against the current tariff of Rs 488 per MMBTU.

Tariff option of Captive Power Plants (CPPs), which presently pay Rs 573 per MMBTU, is proposed to be the same as being proposed to general industry.

The proposed tariff for Compressed Natural Gas (CNG) sector will be either Rs 700 per MMBTU or Rs 750 per MMTBU against current tariff of Rs 657 per MMTBU. Commercial sector which pays Rs 637 per MMBTU will be treated at par with CNG sector. The proposed tariff for power sector is Rs 600 MMBTU from Rs 488 per MMBTU.

Fertilizer sector’s (fuel) whose present tariff is the same as that applicable to CNG and commercial sectors whereas tariff for fertilizer – feed (old) will be increased to Rs 200 per MMBTU from Rs 123 per MMBTU. However, the proposed tariff for fertilizer feed (new) will be Rs 72 per MMBTU from Rs 68 MMBTU.

According to Petroleum Ministry, if tariff of all sectors is increased as per option-1, the SNGPL shortfall will reduce to Rs 18 billion, with option-2, Rs 10.2 billion and option-3 Rs 0.8 billion. The present shortfall of SNGPL is Rs 46.8 billion. Likewise, the shortfall of SSGC will be Rs 2.2 billion by increasing tariff in accordance with option-1, Rs 17.4 billion option-2 and Rs 28.8 billion option-3. The present shortfall of SSGC is Rs 30.4 billion.