Urea prices may increase by Rs200/bag

ISLAMABAD: Urea prices are likely to increase by Rs 200 per bag with a hike of 62 percent feed gas price and 31 per cent fertilizer fuel, to be effective from July 1, 2019, well informed sources told Business Recorder.

The Economic Coordination Committee is expected to approve new gas prices on Wednesday (today). Presently, urea prices are hovering around Rs 1850 and 1900 per bag in far flung areas.

According to the draft summary, Petroleum Division has proposed fixation of fertilizer-food (old) at Rs 300 per MMBTU from existing rate of Rs 185 per MMBTU( 62 per cent increase) and fertilizer-fuel at Rs 1,021 per MMBTU from existing rate of Rs 780 per MMBTU( 31 per cent increase). The gas price for power sector will be increased by 31 per cent to Rs 824 from Rs 629 MMBTU. The new rate for cement sector will be Rs 1,277 per MMBTU as compared to Rs 975 per MMTBU( 31 percent increase) while the new rate for general industry and captive power plants will be Rs 1,021 per MMTBU from existing tariff of Rs 780, also indicating an increase of 31 per cent.

Petroleum Division, has also proposed increase in gas tariff for zero rated industry to Rs 786 per MMBTU from Rs 600 (31 per cent hike) , CNG Rs 1,283 per MMBTU from Rs 980 ( 31 percent hike )and commercial Rs 1,283 per MMTBU from Rs 980 ( 31 per cent hike).

Zero rated industry in Punjab will be provided gas/ RLNG at weighted average tariff of $ 6.5 MMTBU subject to subsidy, if approved by the government; else they will be charged at notified tariff of gas/RLNG against their actual consumption.

The proposed revision in gas sale prices would generate Total Revenue of Rs 508 Billion, thus meeting the entire revenue requirements of Rs 487 billion for FY 2019-20 as well as recoup Rs 21 billion towards stock of circular debt.

While remaining within the overall scheme of Gas Development Surcharge (GDS) levy and collection under the law, Petroleum Division in consultation with Finance Division, Ogra and relevant stakeholders will develop a mechanism which would allow adjustment of any shortfall of SNGPL out of the surplus revenue generation of SSGC, so as to create a balance in the overall system. A proposal in this regard will be submitted to the ECC separately for consideration.

The prices approved for consumers of SNGPL and SSGC will also be made applicable for Fertilizer and Power Sector consumers to whom gas is supplied directly from fields by Mari Petroleum Company Limited (MPCL) and Pakistan Petroleum Limited (PPL). The Sale Price of gas for Liberty Power supplied by SNGPL and for Uch Power supplied by OGDCL will be determined in accordance with already approved pricing formula /mechanism.

According to the summary seen by this correspondent, the two 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). Under this regime and in accordance with Section (1) of Ogra Ordinance 2002, Revenue Requirements of the two companies are determined by Ogra which mainly comprise of: (i) well head gas price (ii) Transmission & Distribution cost and (iii) Profit margin (presently 17.43 percent return on assets before financial charges and taxes).

Per unit Revenue Requirement (Rupees per million BTU) is defined as prescribed price. Based on Revenue Requirements, Ogra pursuant to section 8(1) of the Ogra Ordinance, 2002 advises category wise Prescribed Prices for various categories of consumers, which forms the basis for the Federal Government in determining the category wise gas sale price for each category of consumer, pursuant to section 8(3) of the Ogra Ordinance, 2002.

Ogra in its latest decision of May 17, 2019 has determined the estimated Revenue Requirement of SNGPL at Rs. 293.305 billion and SSGCL Rs. 270.776 billion for FY 2019-20.

Accordingly a Net Revenue Requirement (NRR) after adjusting other income regarding SNGPL is Rs. 277.913 billion and for SSGCL is Rs. 263.247 billion.

Current gas sale prices would result in a net revenue shortfall of Rs 87.630 billion and Rs 56.803 billion respectively.

Ogra has recommended 31% and 20% across the board increase in gas sale prices for all categories of consumers of SNGPL and SSGC respectively, except domestic sector, where the suggested increase illustrates an approach towards rationalization of domestic tariff based on indexation of each slab tariff with weighted average Prescribed Price (cost of supply). The government will increase gas tariff for domestic consumers by about 200 per cent. However, as the government is following a policy of uniform Gas Sale Prices across the country, it will be expedient to benchmark the decision making with SNGPL’s revenue requirements for all consumers across the country.

At present, the entire volume is billed at the rate applicable for a particular slab in which a particular consumer is falling during any particular month. The billing mechanism is proposed to be revised so that the benefit of one previous slab is available to domestic consumers (residential use) in line with practice being followed for electricity consumers. Minimum monthly charges will be determined by Ogra considering consumption of 0.4 hm3 per month using average GCV of system gas in the country and approved pressure factor.

Monthly bill for Special Commercial consumers (Roti Tandoor) with consumption upto 3 hm3 will be as per domestic slabs. However, the entire volume above 3 hm3 will be charged at tariff applicable for commercial consumers.

For consumers up to 3 hm3, gas companies will reflect the full gas charges at weighted average prescribed prices, subsidy to the consumers and net gas charges payable at above rates.—MUSHTAQ GHUMMAN