MUSHTAQ GHUMMAN

ISLAMABAD: The government has allowed SNGPL and SSGCL to manage gas loads on their systems through RLNG system gas swap mechanism through setting up a deferral account by OGRA, official sources told Business Recorder.

Giving the background, the sources said, the ECC on June 14, 2016 discussed determination of sale price of RLNG. In line with this decision ECC approved policy guidelines with respect to determination of sale price of RLNG, and Oil & Gas Regulatory Authority (OGRA) has been determining the sale price of RLNG on monthly basis whereas M/s PSO is notifying it.

The pricing of RLNG is ring-fenced activity under Petroleum Product (Petroleum Levy) Ordinance, 1961 and as such all the cost is recoverable from RLNG buyers. At present the OGRA Ordinance, 2002 does not cover the entire LNG/RLNG supply chain in its regulatory framework, ie, from licensing to its pricing. Therefore, the pricing of RLNG is being done under Petroleum Product (Petroleum Levy) Ordinance, 1961. The pricing of RLNG imported by M/s PLL is also being determined by OGRA based on the aforesaid guidelines; OGRA determines the weighted average sale price of RLNG for the LNG imported by M/s PSO and M/s PLL.

The flow of RLNG from first LNG terminal of M/s EETPL commenced end March, 2015, however, necessary infrastructure was nonexistent at that time to carryover the RLNG from Port Qasim Karachi to Lahore where consumption centers are located.

Accordingly, keeping in view this operational constraint, it was decided to utilize the existing available capacity of the transmission and distribution network of both the Sui companies for swapping whereby imported RLNG is utilized within the Sindh Province and equivalent energy units of indigenous gas are transferred to M/s SNGPL by M/s SSGCL in lieu of RLNG. Meanwhile it was decided to construct a dedicated 1200 MMCFD capacity pipeline with a length of 1,100 kms to transport RLNG from Port Qasim Karachi up to Lahore. The project was conceived in two phases, ie, RLNG-I and RLNG-II.

Both the companies raised financing of the RLNG-I phase respectively whereas government provided sovereign guarantee against commercial borrowing for undertaking the RLNG-II phase of the project. The entire pipeline project was to be completed and commissioned by end of December 2016. However, a section of 42 x 400 meters (Jamshoro) out of 340 kms project in SSGCL’s franchise area has jeopardized the entire project. The 400 meters land belongs to a sitting provincial Minister who is unwilling/ reluctant to permit the pipeline construction activities to take place within the boundaries of his land. The matter is now sub judice in the Sindh High Court Karachi. This has led to loss of guaranteed return of 17 percent to the extent of incomplete pipeline segment and continued non-cost effective use of RLNG at Karachi.

The sources further stated that as of now both the LNG terminals, ie, M/s EETPL and M/s GasPort Pakistan are operational with the available total terminal capacity of 1200 MMCFD. But due to unavailability of dedicated RLNG pipeline, the swapping of indigenous gas volumes has continued which is creating problems at the end of both the Sui companies.

M/s SSGCL has reported that swapping arrangement has brought unprecedented and hefty direct financial losses to M/s SSGCL in addition to the operational irritations resulting in indirect financial losses. While accepting RLNG volumes from only the first LNG terminal, SSGCL was consuming all RLNG into its Karachi distribution network and diverting indigenous gas in lieu of RLNG. This phenomenon has resulted in higher Unaccounted for Gas (UFG) specifically in Karachi region due to low specific gravity of RLNG as compared to indigenous gas having impact on gas flow rates by approximately 4 percent and thus contributing in existing UFG through increased line leakages, theft volumes and metering errors. Besides this, high BTU, high pressures and low temperatures of RLNG also contributed in increasing the UFG.

The existing measurement devices installed are not efficient enough to register accurate RLNG volumes because of limitations in technical specifications of metering devices. The situation is further aggravated when the RLNG volumes penetrate in the distribution network of upper Sindh with the introduction of 2nd Terminal from mid December 2017, while RLNG volume increased to 1200 MMCFD. The customers in Sindh are being billed on energy units; therefore, additional revenues are collected from the customers and offered in revenue requirements. M/s SSGCL took up the matter with OGRA, however the authority in its decision for FY 2016-17 observed that the technical issues relating to use of RLNG, if any, are to be taken under the relevant access arrangement/Gas Transportation Agreement if any, are to be taken by the transporter with the shipper under the relevant access arrangement/ Gas Transportation Agreement and settle the same accordingly.

According to sources, pricing of RLNG is governed under aforesaid guidelines of the ECC whereby the costs as well as revenue of RLNG have been ring fenced. The guidelines were so developed that the companies should not be exposed to, or be worse off due to any adverse impact of RLNG handling.

Under the said ECC approved guidelines distribution loss is to be determined and charged at actual to RLNG consumers who at the stage were consuming RLNG on the supply network of SNGPL only, now the consumption of RLNG in SSGCL’s system has since commenced.

M/s SNGPL is accepting RLNG volumes from M/s PSO & M/s PPL (who have take or pay obligation in upstream LNG contracts) whereas most of contracts with downstream RLNG consumers are on as and when available basis, therefore, at times the swapped volumes in lieu of RLNG received from M/s SSGCL are to be delivered as system gas to other consumers on day to day basis in case of less off-take of RLNG by consumers to balance and operate the system within sale limits.

The demand of RLNG of power sector increases during summer months while it is reduced during winter months owing to seasonal electricity demand, arising from low dispatch by power purchaser to RLNG based power plants. On the other hand, gas demand in the domestic sector increases manifold during winter months while indigenous gas is insufficient to cater to domestic winter gas demand.

In anticipation of indigenous gas shortfall requiring effective load management during winter months, M/s SNGPL has adopted a time swap based gas banking mechanism whereby during peak demand additional system gas is sold as RLNG during the summer season while the same surplus balance of RLNG is recuperated during the winter season. The absence of such mechanism may result in severe load curtailment for domestic consumers in winter and significant power sector load shedding in summers which could result in large scale public outcry.

The gas banking system requirement was also necessitated since M/s SSGCL is providing significant part of RLNG through swap which has lower BTU value and M/s SNGPL has to add around 35-40 MMCFD of its system gas to make up for the requisite MMBTUs of RLNG supplies on a continuous basis in accordance with the international best practices.

The sources further stated that it was not technically possible to supply RLNG or system gas separately through a co-mingled pipeline system to downstream consumers rather it has to be swapped from one category of consumers to the other category of consumers on day to day requirement of the respective consumers. Therefore, this swapping of RLNG and system gas is unavoidable. This time swap based mechanism adopted by SNGPL is being used as an effective tool to manage gas loads on system during peak demand period. However, by virtue of this the gas banking system can only work if there is provision for carrying forward the gas bank related adjustments in volumetric and financial terms in the current and subsequent financial years as part of RLNG price at no cost or benefit to the company/cost neutral basis.

Petroleum Division, in its summary proposed the following mechanism: (i) M/s SSGC may be allowed UFG based on RLNG handling basis (volumetric basis) in the Sale Price of RLNG in the form of distribution loss due to swapping arrangements and consumption of RLNG in its franchise area; (ii) distribution loss to be determined and charged at actual including the losses due to swapping arrangements and consumption of RLNG in SSGC franchise area (determined on volume handled basis, ie, metered system gas in and metered system gas out). The said loss for the customers located on high pressure transmission lines as well as those customers who are willing to lay their dedicated line from SMS/TBS at their own cost shall also be determined and charged at actual. However for other customers on distribution lines an actual average UFG for the last financial year will be taken in determination; (iii) M/s SNGPL and SSGCL be allowed to manage gas loads on their system through RLNG-System gas swap mechanism for which necessary provision of volumetric adjustment and financial impact may be made on cost neutral basis in the sale price of RLNG on a multi-year and ongoing basis through setting up of a deferral account by OGRA; and (iv) Cabinet Division in consultation with OGRA processed the amendment in OGRA Ordinance, 2002 to cover the entire LNG/RLNG supply chain in its regulatory framework, ie, from licensing to pricing of RLNG.

After detailed discussion, the ECC approved the proposal submitted by the Petroleum Division.