ISLAMABAD: In a fresh twist to the liquefied natural gas (LNG) saga, the Sui Northern Gas Pipelines Limited (SNGPL) has refused to provide gas to Universal Development Gas Company (UGDC), an umbrella company of CNG stations, and has asked individual gas stations to import the commodity through Pakistan State Oil (PSO).

Interestingly, the SNGPL has asked the CNG sector to make advance payments, open letters of credit (LCs) for LNG import and transfer its title to SNGPL which should then sell the commodity back to CNG stations at a price to be notified by Oil and Gas Regulatory Authority (Ogra).

Read: LNG muddle

“The only viable option left is to transfer title of regasified LNG (RLNG) to SNGPL, which will then deliver it to the CNG sector at RLNG price notified by Ogra,” said an official communication. “The workable transaction structure at this time shall entail raising of invoice by SNGPL to the individual CNG stations per the notified price, seeking payment on an advance basis, which such proceeds be paid directly to PSO. The SNGPL accordingly will only provide gas to such CNG stations that have made advance payments.”

SNGPL asks CNG stations to import liquefied natural gas through PSO

This is despite the fact that the Economic Coordination Committee (ECC) of the Cabinet has recently allowed UGDC to act as a special purpose vehicle (SPV) to collect funds from CNG-station owners and import LNG. To facilitate UGDC, the ECC allowed LNG import for CNG sector at just five per cent general sales tax (GST) against normal 17pc and waived gas infrastructure development cess (GIDC) to ensure 30pc price parity with petrol.

Informed sources said the major reason behind SNGPL’s stance was its fear that a new company might be entering into gas distribution system where the SNGPL had so far enjoyed monopoly that legally ended a few years ago.

Also read: LNG sale, billing hit by legal, financial complications

In a separate letter to the All Pakistan CNG Association (APCNGA), the SNGPL asked CNG stations to directly deposit advance payment with it within 24 hours at the rate and duration of security deposit to be notified by the petroleum ministry very shortly. It said the decision for this arrangement was based on consideration that APCNGA did not have a valid licence at this time.

The same letter also asked the petroleum ministry to issue provisional RLNG sale price for CNG sector on an urgent basis and clarification be also made regarding GIDC and GST “since RLNG will not be supplied through SPV now”. But it did not elaborate how an ECC decision could be undone at a subordinate level.

Ghiyas Abdullah Paracha, a central leader of the APCNGA, said that after keeping the CNG sector closed for over six months now and depriving its right over natural gas, the gas utility appeared bent on closing down CNG stations forever.

He said the SNGPL’s resistance to allow CNG sector make its own arrangements for LNG supply on grounds that UDGC did not have a valid licence issued by Ogra was discriminatory and illegal. He said the SNGPL was asking the CNG sector make advance payments to PSO for LNG was arbitrary given the fact that PSO also did not have a valid licence for LNG.

“How can a public sector company ask a private business to make payments to one company and give its title and ownership rights to another,” he questioned, adding that “when we are required to open letters of credit or make advance payment, the title of commodity could not be transferred to SNGPL”.

He said the UGDC had collected funds from more than 1,200 members on three different letters issued by the government in February and March and offered to take full LNG supplies and open LCs. He said the SNGPL had been holding more than Rs10 billion security from CNG sector, and despite no gas supply for over six months deducted unilaterally another Rs4 billion against defaulting companies as a result of gas blockade.

He said the UGDC was the only company that had applied for the Ogra licence, paid all fees and provided all documentation and had in fact established its first right over LNG but non-completion of Ogra quorum was hampering licence. He contended this premise was hollow because no other players, like PSO, Engro, IPPs and fertiliser plants, had the said licence for LNG and all of them were working under provisional arrangement.

He said the CNG sector was an existing consumer and had rights for 15 years after paying all fees and security and did not require fresh capacity allocation by SNGPL. He said the CNG industry had written to the SNGPL regarding its rights over pipeline capacity but the gas utility had not responded to them within legally required 15 days deadline. He said the UGDC had made LNG import arrangement, signed agreement with suppliers and terminal operators but SNGPL was creating hindrances.

Published in Dawn, May 20th, 2015

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