LNG back to being ‘natural gas’ as PM approves redesignation

Updated May 12, 2018

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The ECC has approved Rs20 billion for PIA just for overhauling of the engines of its fleet.
The ECC has approved Rs20 billion for PIA just for overhauling of the engines of its fleet.

ISLAMABAD: Prime Minister Shahid Khaqan Abbasi on Friday corrected Pakistan’s dictionary on hydrocarbons that he had himself changed almost three years ago.

Presiding over a meeting of the Economic Coordination Comm­ittee (ECC) of the Cabinet, the prime minister approved redesignating liquefied natural gas (LNG) as natural gas under the 2002 Oil and Gas Regulatory Authority (Ogra) Act that he had ‘defined’ as petroleum product under the 1961 Petrol Product (Petroleum Levy) Ordinance in April 2015.

“The ECC approved a proposal for introducing necessary amendments in the Ogra Ordinance 2002 to cover the entire LNG/RLNG supply chain in the Ogra regulatory framework and to remove anomalies in the dispatch, receipt and billing of RLNG volumes,” said a brief statement issued after the meeting.

The purpose of including LNG under the definition petrol product in 1961 law three years ago was to bypass provincial involvement in decision making regarding LNG imports by the Pakistan State Oil (PSO) and at the same time avoid public hearing for regasified-LNG (RLNG) and instead fix its prices on the advice of PSO.

Informed sources said the redesignation of LNG as ‘gas product’ instead of ‘petroleum product’ was necessitated by legal objections raised by the auditors. The summary for the change was moved in the morning and approved within hours by the ECC before stakeholders could file written comments, these sources said.

No change in pricing mechanism, landed cost to serve as equivalent of wellhead price

The RLNG pricing mechanism would, however, remain unchanged and take place on monthly basis without public hearing to ensure continuous billing cycle. The element of unaccounted for gas (UFG) of RLNG would, on other hand, become part of the revenue requirement of the gas companies and dealt separately on biannual basis.

A senior petroleum division official said the landed cost (after tolling charges) of LNG under various agreements with LNG suppliers would be deemed as wellhead price and the mathematical computation would take place as usual under the existing pricing formula given by the government.

The Ogra had also been advising the government that existing RLNG pricing under the 1961 petroleum levy law was an ad hoc arrangement and required a comprehensive legal framework to regulate the entire system, from supply to pricing.

“Eventually the entire LNG/RLNG supply chain is required to be governed by a proper regulatory framework under one legislation which may be called ‘Ogra Ordinance’,” the regulator had advised, adding the current system of spot LNG purchases, sale to consumers, invoicing and fixing the prices of end products had no legal standing.

This was later agitated by the auditors. They were not satisfied with the government’s previous decision of setting RLNG prices in line with other petroleum products on a monthly basis through an amendment in the schedule of Petrol Products (Petroleum Levy) Ordinance, 1961, to declare RLNG a petroleum product.

As a solution, the regulator has advised the government that “an amendment in Ogra Ordinance shall be appropriate to regulate this activity”.

As a norm, LNG is defined as a natural gas product, and not as an oil product around the world.

Rs20bn guarantee

The ECC also approved provision of an additional guarantee of Rs20 billion for Pakistan International Airlines (PIA) to meet the expenditure for the overhauling of aircraft engines. The meeting directed Aviation Division and the Finance Ministry to ensure that the financing support approved by the ECC was strictly utilised only for the defined purpose.

An announcement said the chief executive officer of PIACL also briefed the meeting about the progress made so far in the efforts to turn around national flag carrier and to reduce its losses, without further details.

The meeting also approved the supply of 35,000 tonnes of wheat from Passco to the World Food Programme for distribution amongst the Temporary Displaced Persons (TDPs) of Fata.

The ECC also approved, in principle, exemption of regulatory duties on import of fresh fruits, vegetables and dry-fruits from Afghanistan which was announced by the prime minister during his visit to Afghanistan.

Published in Dawn, May 12th, 2018