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ISLAMABAD: The owners of about 2.5 million vehicles in the country running on compressed natural gas will be completely at the mercy of market forces from now onwards as the government formally designated CNG filling stations a deregulated business on Tuesday.

The total number of vehicles running on CNG stood at about 3.7 million about three years ago when the government stopped supplying natural gas to CNG stations in Punjab. About 1.9 million vehicles switched to alternative fuel — petrol or diesel — in Punjab, according to Ghiyas Abdullah Paracha, a leader of the All Pakistan CNG Owners Association (APCNGA).

He said that about 600,000 consumers had returned to CNG since the government started supplying LNG to the sector. With deregulation, more consumers are expected to come back to CNG once supplies become smooth and pricing is deregulated because CNG kits are still with the vehicles but their owners are not filling their tanks at present. About 70 per cent of these vehicles are public sector transport — Suzuki vans, wagons and buses.

The government notified deregulation of CNG pricing and decided to provide legal cover to the prices fixed by the Oil and Gas Regulatory Authority (Ogra) over the past seven years and tax collection thereof.

Govt decides to provide legal cover to the prices fixed by Ogra over the past seven years

“The CNG sector stands deregulated from the date of repeal of Ogra (Amend­ment) Ordinance, 2009 (XVI of 2009),” said a notification issued by the Minis­try of Petroleum and Natu­ral Resources after its approval by the Economic Coordina­tion Committee (ECC) of the cabinet on Dec 13.

However, as directed by the ECC, the notification protected the presumptive system of general sales tax (GST) collection on end-price of CNG to protect revenue stream.

According to informed sources, the petroleum ministry had originally moved a summary for fixing of CNG price by retailers in Sindh, Khyber Pakhtunkhwa and Balochistan under a totally deregulated regime as is currently the case in Punjab where CNG stations chiefly bank on imported re-gasified liquefied natural gas (RLNG) in the absence of domestic gas.

However, the law ministry pointed out that CNG pricing already stood legally deregulated when an ordinance empowering Ogra to fix its prices lapsed in 2009.

The ordinance promulgated by then president Asif Ali Zardari had lapsed because it could not be backed by an act of parliament. In the meantime, however, Ogra had started fixing the prices through CNG rules formulated by the regulator itself.

The law ministry pointed out that the rules without a valid law did not hold legal ground. It was feared that since the CNG pricing between 2009 and now was not under any law, this could create a legal challenge that might also call into question GST collection during the entire period.

It was also put on record that because of the lacunae Ogra did not fix CNG prices for the past few years and even stopped issuing indicative price of reasonability after September last year.

Based on this challenge, the ECC decided last week to protect past pricing and a notification to that effect was issued by the petroleum ministry on Tuesday.

“In order to provide legal cover and to avoid future legal ramifications, Ogra (Amendment) Ordinance, 2009 (XVI of 2009) may be re-enacted with retrospective effect containing validation and sunset clauses from the date of promulgation of the Ordinance,” said the notification.

It also said that the “existing system for sales tax collection on CNG shall continue”, which means that CNG consumers will continue to pay about 23 per cent effective GST.

The notification said the ministries of law, cabinet and petroleum would take further necessary steps and implement the decision, which was already practically enforced.

But these ministries will need to devise a mechanism to protect the existing GST rate in view of the fact that various CNG retailers may set different rates as part of competition in big cities and in case of monopolies in small cities and towns which have limited number of CNG stations.

Practically, CNG consumers will have to take their own decisions about the quality and pricing of CNG at a filling station or switch to petrol as an alternative fuel without any advisory or involvement from any government department.

The CNG operators in three other provinces are now likely to quote their price independently in litre on the pattern of Punjab based on price mechanism guidelines to be issued by the CNG owners association.

Welcoming the government decision, the APCNGA said it would revive the Rs450 billion industry.

“It has ended the role of Ogra in determining the price and left it to the market forces,” Mr Paracha said, adding that the decision would pave way for healthy competition among the owners of CNG filling stations to the benefit of consumers and attract investment in the ailing sector.

It would resolve many outstanding issues of the CNG industry as the owners of CNG stations would be free to fix its price, he said, adding that it would also have a positive impact on litigation because several cases pending in courts for the past four years would be disposed off automatically.

Mr Paracha said the government would now decide prices of gas, electricity and ratio of taxes while the owners of CNG stations would determine the price of the fuel as they would not have to wait for the Ogra decision.

Published in Dawn December 21st, 2016