ECC may approve 30pc increase in gas price

ISLAMABAD, April 5: The Economic Coordination Committee of the Cabinet (ECC) is expected to approve on Friday up to 30 per cent increase in the average price of natural gas through injection of 150 million cubic feet of Liquefied Petroleum (LPG) airmix, and fix wheat procurement target of 7.7 million tons for the current year through bank borrowing of about Rs210 billion.

To be presided over by Finance Minister Dr Abdul Hafeez Shaikh, the meeting of the ECC will take up a seven-point agenda that also includes allocation of new gas finds for different consumer sectors, allowing United Bank Limited to open its subsidiary in Tanzania, and doubling the limit on the Mari Gas Company Limited’s expenditure for exploration from $20 million to $40 million. It will also review implementation status of its earlier decisions and review economic indicators for the first nine months of the current year.

A senior government official told Dawn on Thursday that the previous government, through a decision of the ECC in 2007, had allowed LPG airmixing for compressed natural gas (CNG) and liquefied natural gas (LNG) based pipelines projects of two gas utilities – SNGPL and SSGCL – but had restricted it only for projects launched on instructions of the president, the prime minister or the ECC.

Owing to such restrictions, the LPG airmixing, however, could not take off. The ministry of petroleum and natural resources has now moved a fresh summary that seeks to allow two gas utilities to take up airmixing projects at their own with the approval of their board of directors in view of severe gas shortages in some sectors.

The LPG airmixing proposal has been strongly opposed by Ogra, saying it would increase consumer tariff and benefit stockholders at the cost of general consumers. Under the revised mechanism proposed by the petroleum ministry, the gas companies would be allowed to extend the supply of LPG air mix to new areas and the existing consumers and would be entitled to a rate of return that is applicable to normal gas operations through a uniform cost of gas formula.

A sliding scale of increase in the cost of gas worked out by the petroleum ministry, the weighted average cost of gas would increase by about 2 per cent in case of 10 million cubic feet per day (MMCFD) of LPG airmix, going up to 10 per cent in case of 50 MMCFD of LPG airmix and up to 30 per cent in case of 150 mmcfd of LPG airmix.

WHEAT PROCUREMENT: The ECC is also expected to approve a wheat procurement plan for the current season at a total cost of Rs210 billion at the rate of Rs1050 per 40 kg support price announced by the prime minister. The federal government will make arrangements for bank borrowings through its sovereign guarantee.

According to the plan prepared by the Ministry of National Food Security and Research, the procurement target for the current season would be 7.725 million tons. The plan envisaged a target of four million tons of procurement target for Punjab at Rs105 billion. Sindh, Khyber Pakhtunkhwa and Balochistan will be required to procure 1.3 million tons, 325,000 tons and 100,000 tons of wheat during the season, respectively.

Sindh, KPK and Balochistan will require Rs34 billion, Rs8.5 billion and Rs2.6 billion, respectively for the purpose.

Separately, the Pakistan Agricultural Storage and Services Corporation will be given a target to procure 2 million tons of wheat for strategic reserves at a cost of Rs59 billion. This is despite the fact that about 4.5 million tons of wheat stocks are currently available in government godowns, including 1.9 million tons with the Punjab government and 540,000 tons with Passco. As such, the next season will start with a carry over stock of about 3.5 million tons and fresh expected produce of about 25 million tons. Informed sources said the provincial governments have agreed to the procurement plan for the current season on the condition that the federal government would arrange financing for the wheat procurement but in future the issue should be decided by the Council of Common Interest (CCI) because the ECC did not have powers to consider such subjects after the 18th Constitution Amendment.

Another summary seeks to re-tender the LNG import project on government’s sovereign guarantee setting aside an evaluation criteria put in place by Ogra to ensure quality investors.

The Ogra has also opposed the petroleum ministry’s proposal for fixation of oil prices twice a month, saying it would lead to hoarding and shortage of petroleum products. The regulator has also opposed another proposal of the petroleum ministry that seeks to expand gas infrastructure for new towns. Ogra argues that such expansion was economically unviable because existing consumers were suffering serious gas shortages and would be burdened by new investment.

INVESTMENT LIMIT: The ECC would also consider a proposal from the ministry of petroleum to enhance the exploration expenditure limit of the Mari Gas Company Limited (MGCL) from $20 million to $40 million per annum to enable it to aggressively pursue its exploration activities.

The government has a direct shareholding of 18 per cent and another 20 per cent indirect stakes through Oil and Gas Development Company Limited.

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