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Private sector company allowed to import LNG

February 25, 2016

ISLAMABAD: A private sector firm, Universal Gas Distribution Company (UGDC), was allowed on Wednesday to import or purchase liquefied natural gas (LNG) from suppliers and sell it to compressed natural gas (CNG) stations across the country for vehicular consumption.

A formal licence has been issued by the Oil and Gas Regulatory Authority (Ogra) to UGDC for sale of natural gas for an initial period of 10 years.

The company is a joint venture created by CNG operators led by All Pakistan CNG Association (APCNGA) Chairman Ghiyas Abdullah Paracha.

This is the first time that a private sector firm had been allowed to sell imported LNG to consumers — a business currently in the monopoly of the two gas utilities, namely the Sui Southern Gas Company Limited (SSGCL) and Sui Northern Gas Pipelines Limited (SNGPL).

This came following a letter of comfort issued by the federal government to the UDGC for import and sale of 75 mmcfd (million cubic feet per day) of LNG through spare processing capacity at the Engro LNG Terminal in December.

Mr Paracha, who is also the company’s CEO, said the licence was issued after his firm efforts of almost 19 months and completion of the entire legal process. “Ogra also vetted legal framework, conducted public hearings and conducted third-party audit before approval. UGDC can now import LNG or buy it from any government or private entity to sell it to consumers,” he said.

Ogra said it issued the licence for sale of natural gas to UGDC under sections 22 and 23 of the Ogra Ordinance and Natural Gas Regulatory Authority Rules “to undertake regulated activity of sale of natural gas to consumers”.

Under the licence, the company will transport natural gas from transmission and distribution network of integrated gas companies (SSGCL and SNGPL) under the terms and conditions of Gas Transportation Agreement (GTA) under third-party access regime, rules and law.

“UGDC will be exclusively responsible to purchase/arrange LNG and re-gasify at EETPL’s terminal or any other terminal with prior permission of Ogra through finance arranged in accordance with SECP [Securities and Exchange Commission of Pakistan] applicable regulations, being a commercial transaction,” Ogra said, adding: “SNGPL and SSGCL will enter into GTA strictly in accordance with the applicable government policies, applicable law and allocations after satisfying technical and financial modalities.”

The UGDC will be required to obtain services of gas utilities for billing and metering under the mutually consented services agreement until and unless it sets up its own metering and billing system to the satisfaction of the regulator.

UGDC Chairman Iftikhar Ahmad and CEO Paracha welcomed the decision, saying it would promote investment and improve investor confidence to help end energy crisis and revive an otherwise struggling CNG sector. “This is the first ever attempt by a sinking industry to bail out itself. It will become a case study in the business schools around the world,” said Mr Ahmad, a retired brigadier.

Thousands of closed CNG stations in Punjab would be revived through uninterrupted supply of gas through the network of Sui companies according to existing rules and regulation which will be 30 per cent cheaper than petrol, Mr Paracha said.

He said the sale of domestic gas to CNG stations would continue to be under prices approved by Ogra while LNG-based sale of gas would be completely independent and based on commercial terms and yet 30 per cent cheaper than petrol.

He said the move would reduce oil import bill, cut urban pollution, provide jobs to many and bail out the sinking CNG industry in which people had invested over Rs350 billion.

Responding to a question, Mr Paracha said the UGDC was now authorised to arrange and sell LNG under 2011 LNG policy purely on a commercial basis. He said the UGDC was in the process of securing LNG from PSO that would be transported using the existing system of gas utilities at a charge. Government taxes would then be added to fix a price for consumers.

Now, the CNG stations located in residential areas would be empowered to move out their outlets and would also be allowed to use electricity generators in case of power failure which is currently prohibited because of their location.

He said the government had allowed them 75 mmcfd of LNG in the first phase, even though demand was more than 300 mmcfd. He said the priority would be secure 75 mmcfd share out of LNG being imported by the government through Qatargas. However, in case the government was able to sell all these quantities to the power sector, the UGDC was also in contact with other suppliers.

He said the gas utilities had shared a GTA draft with the UGDC for transportation charges other modalities, but this could not be signed in the absence of the licence that had now been issued by Ogra.

Published in Dawn, February 25th, 2016