Ogra approves provisional price of $8.64 per unit for RLNG

Published October 8, 2015
Orgra puts on record that even the provisional price at $8.64 per MMBTU was issued in ‘national interest’.—ogra.gov.pk
Orgra puts on record that even the provisional price at $8.64 per MMBTU was issued in ‘national interest’.—ogra.gov.pk

ISLAMABAD: Finally, the Oil and Gas Regulatory Authority (Ogra) approved on Wednesday a provisional price of $8.64 per unit for regassified liquid natural gas (RLNG) delivery in Karachi in ‘larger public interest’ after pointing out over a dozen legal and documentary deficiencies in the entire framework.

The regulator put on record that even the provisional price at $8.64 per million British Thermal Unit (MMBTU) was issued in ‘national interest’ because its absence could halt LNG procurement, resulting in higher energy shortfall and loss to public kitty in terms of material amount of fixed terminal capacity payments and adversely impact negotiations with Qatar for a long-term deal.

In doing so, it disallowed administrative charges and cost of service to two gas utilities (SNGPL and SSGCL) and fixed sale margin of Pakistan State Oil (PSO) at 1.83 per cent instead of four per cent sought by the ministry of petroleum. The PSO margin includes about 1.32pc of LNG price delivery ex ship (DES) to be paid to the government and 0.5pc of direct benefit to the PSO.

Take a look: Ogra faces legal hitches in RLNG pricing

Ogra also cut retainage (loss during regassification) at 0.75pc instead of 1.5pc demanded by the ministry and disallowed infrastructure cess on RLNG imposed by the Sindh government.

Sources said Ogra was under extreme pressure to issue a price at the earliest, even if it was provisional, to facilitate long-term supply contract with Qatar and was not happy with cuts applied by the regulator on various price factors in finalising the provisional price.

The provisional price now includes LNG delivery ex-ship cost at $7.726 per mmbtu plus terminal charges (flat) at $0.66, PSO’s import related costs of $0.009, retainage at $0.063 (0.75 pc), half per cent transmission loss at $0.039 and 1.82pc PSO margin at $0.14, making RLNG price delivered at SSGC’s network at Karachi to $8.64 per MMBTU without general sales tax.

The provisional price allowed by the regulator seemed to have taken note of expert level criticism on exorbitant pricing build up proposed by the ministry of petroleum and its subsidiary companies and tried to ensure that LNG fuel was cheaper than furnace oil for power plants, CNG and fertiliser.

Ogra said the information submitted by PSO for RLNG pricing prima facie suggested that LNG framework suffered from fundamental shortcomings. It said the long-term LNG sale-purchase agreement with Qatar on G-to-G basis, a hallmark of LNG arrangement, had not been finalised yet. Tripartite agreement which regulates the supply chain between PSO, SNGPL and SSGCL had also not been signed yet.

The regulator said the agreement with the end consumer — power plants, fertiliser units and CNG stations — had not been provided to it. Also, PSO had not ensured that the cost components, according to the government decisions, had been mutually agreed upon and settled.

The PSO was required to provide details to the effect that LNG activities were governed under the tripartite agreement, in compliance with the law and in accordance with the approval of competent forum which were not yet provided.

It said the PSO had initially procured four cargoes for SNGPL on spot purchase basis whereas the government in its various decisions advised that rules should be followed in letter and spirit. In this context, the authority has pointed out that PSO has entered into short-term agreements and has also procured LNG cargoes at various rates, but were not presented to the government for approval.

The regulator said PSO’s LNG procurements required that transparency in the process must be ensured through foolproof internal control system, proper disclosure, approval mechanism and necessary checks and balances in the entire supply chain, in order to make the project a success.

It put on record that the government had already constituted committees on RLNG pricing component and LNG price negotiations on G-to-G basis, but deplored that no such committee had been involved to monitor short-term arrangement to ensure commercial prudence in view of price of RLNG against price of alternative fuels.

Moreover, LNG activities, including cost flow till RLNG end consumer, operated on the mutual agreements and principle of synergy. Such agreements, including G-to-G LNG agreement, rate finalisation with PQA, tripartite agreements, SNGPL agreement with end consumers, all have not been finalised yet. Accordingly, no cost and payment have been settled or agreed, which ought to be the basis for such determination.

Ogra said it would soon start the process of holding public hearings for final RLNG price when all the documentation was completed to obtain the concerns of bulk buyers who were party to the arrangement and of the public whose interest may directly or indirectly get associated with this arrangement since the LNG arrangement had to be executed for existing consumers and through existing network.

“In view of above, it transpires that final RLNG price cannot be determined unless the LNG procurement made so far bears federal government approval, mutual agreement in channel are finalised, activities are streamlined and accordingly information complete in all respect are submitted in letter and spirit.”

Published in Dawn, October 8th, 2015

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