ISLAMABAD: Despite strong resistance by the regulator, the government on Tuesday ordered increasing the price of re-gasified liquefied natural gas (RLNG) by about $1.2 per unit by allowing a series of factors in its price previously rejected by the Oil and Gas Regulatory Authority (Ogra).

The decision was taken at a meeting of the Economic Coordination Committee (ECC) of the Cabinet presided over by Finance Minister Ishaq Dar.

The committee allowed Gwadar Port Authority to select a Chinese company along with Chinese equipment for Engineering, Procurement and Construct (EPC) contracts of Gwadar Port.

A senior government official said that Ogra had allowed 66 cents per Million British Thermal Unit (MMBTU) terminal charges for LNG on the basis of a previous decision of the federal cabinet. However, the petroleum ministry and its companies entered into an agreement with Engro Terminal for levelised charge of 66 cents over 20 years.

Resultantly, Engro billed to government entities effective tariff of $1.45 per unit for first few years because of lower volumes — starting with 100mmcfd in initial few months. The petroleum ministry and Engro viewed that average levelised tariff would be 66 cents per unit and not flat 66 cents per unit.

The ECC decided that actual terminal charge billed by Engro (i.e. 145 cents per unit for initial flows) be charged to RLNG consumers. “Port charges will also be taken at actual, including amount reimbursed to suppliers as per relevant agreement.”

Secondly, the ECC directed Ogra to allow actual system losses (about 11 per cent on average) for calculation of RLNG price for its consumers which was originally rejected by the regulator. Ogra had allowed only 4.5pc system losses in RLNG price.

Thirdly, Ogra had rejected the $0.025 charge of LNG price to Sui Southern Gas Company for its LNG Supply Agreement, saying it was not covered under the law and the SSGC was not making any additional investment LNG import or its infrastructure. The ECC, however, directed Ogra to allow $0.025 per MMBTU to SSGC. “SSGC’s Margin for LSA Management to be determined at $0.025 per MMBTU to be treated as non-operating income”.

Fourth, Ogra had disallowed Infrastructure Cess imposed by the Sindh government in RLNG price saying the cess was not applicable on other petroleum products and since RLNG had been declared by the federal government as petroleum product, it should convince the provincial government to do away with that cess.

The ECC, however, directed Ogra to allow this cess in the RLNG price until a decision could be reached with the provincial government. PSO was advised to take up the matter with the Sindh government for non-applicability of Sindh Infrastructure cess in line with other ‘petroleum products’.

The Ministry of Petroleum and Natural Resources was also advised to facilitate Pakistan State Oil (PSO) accordingly. It was also agreed that pending the ultimate settlement of this issue, the said Cess will also be included in RLNG Price.

Port charges will also be taken at actual, including amount reimbursed to suppliers as per relevant agreement. There was a consensus that all relevant cost may be allowed to the Port Qasim Authority to sustain its operation along-with a reasonable profit margin.

PSO would also be entitled to have a margin at 2.50 per cent of LNG price.

The ECC also approved a proposal for transfer of Heavy Mechanical Complex to Strategic Plans Division/Pakistan Atomic Energy Commission from the ministry of industries and production.

While giving approval the committee emphasised that the transfer would take place by ensuring due process and that the rights of complex employees would be fully protected. An amount of Rs500 million was also approved to cover essential expenditure of the company and salaries till June this year.

Out of this amount, Rs253 million will be adjusted on account of salaries already paid to the complex employees as per approval given by the ECC. The SPD/PAEC officials assured the ECC that all efforts would be made to revive HMC to its maximum potential.

The ECC also approved a proposal of the Ministry of Ports and Shipping for the Gwadar Port Authority to proceed with the procurement of one of the three listed Chinese companies through bidding process as well as preference for the use of the Chinese equipment, in accordance with the Framework Agreement, under Section 21 of PPRA Ordinance, 2002 and Rule 5 of the PPRA Rules, 2004.

Published in Dawn, June 15th, 2016