Energy

No change in feed stock prices: ECC may approve 32 % increase in prices of gas as fuel for fertilizer plants

Aftab Ahmed
Islamabad: The Economic Coordination Committee (ECC) is set to approve increase in tariff by 32 per cent for fertilizer fuel and keep tariff unchanged for fertilizer feed stock for old and new fertilizer plants

Petroleum Division in a summary moved to economic coordination committee (ECC) has proposed only 32% increase for gas to be used as fuel from existing Rs1,021/mmbtu to Rs1,346/mmbtu that will have an impact of Rs90/bag on UREA prices. Hike in fuel gas tariff will be applicable on fertilizer companies relying on domestic gas and in case of Fauji Fertilizer Company Limited, Engro Fertilizer Limited and Fatima Fertilizer. For Fauji Fertilizer Bin Qasim Limited gas prices for fuel will not be increased as company is relying on its own coal based power plant to fulfill its power requirement.

300 % Increase in meter rent for domestic consumers

Petroleum division has proposed increase in meter rent by Rs 60 per month in the meter rent for domestic consumers from present Rs 20 per month to Rs 60 per month.The price of Rs 20 per month was set in July, 1999.

Increase of 300% in meter rent for domestic users will bring Rs4,468mn and Rs2,078mn additional income for Sui Northern Gas Pipelines Limited and Sui Southern Gas Company Limited

The Ogra in its latest decision taken on December 11, 2019 had determined the revised estimated revenue requirement for financial year 2019-20 in respect of SNGPL and SSGCL as Rs 274.2 billion and Rs 282.9 billion respectively. Whereas the present sector gas sale prices could generate total revenue of Rs 227.9 billion and Rs 272.9 billion for SNGPL and SSGCL resulting in a projected revenue shortfall of Rs 30.8 billion and Rs 2.9 billion respectively.

Uniformity of sectoral gas sale prices across the country

Petroleum Division has proposed that the existing arrangement for equalization of cost of gas inked on September 22, 2003 may be amended to allow intra-company adjustment in such a manner that the revenue surplus of one company whosoever may be transferred to other company to the extent the revenue deficit of the latter is entirely eliminated. This revised agreement will become effective from July 1, 2018.

Gas supplies to the both gas utility companies are provided by E&P companies based on allocations made by the federal government.Wellhead gas price of each field varies depending on the applicable petroleum concession agreement and or gas pricing agreement which results in varying per unit cost of gas for the both companies.

In order to ensure uniform consumer gas sale prices all over the country, the ECC of the cabinet in June 2003 approved to issue policy guidelines to both gas companies to develop a mechanism of adjusting the cost of gas between them in a manner which should ensure that input cost of gas of the two companies is uniform all over the country. In accordance with these guidelines, both companies entered into an agreement for equalization of cost of gas effective September 22, 2003 pursuant to which the company with the lower weighted average cost of gas is required to pay to the other company so that the overall weighted average rate of wellhead gas price of both companies is the same.

As around 85 per cent of the net revenue requirements of the companies comprises of the cost of gas, the aforementioned arrangement was adequately serving the intended purposes. However, over the period, the consumer mix on SNGPL’s system has significantly changed whereby the sectoral revisions in gas sale prices are resulting in estimated surplus revenue of Rs 13.3 billion on SSGC’s system and an estimated deficit of Rs 19.4 billion on SNGPL’s system.

To entirely mitigate the revenue shortfall of SNGPL, petroleum division proposes further increase of a similar quantum in gas sale prices which will further increase the revenue surplus of SSGC. However, if the arrangement proposed is approved and put in place, M/S SNGPL’s revenue deficit would reduce to Rs 6.1 billion for the current financial year.

Keeping in view this situation, petroleum division had proposed in a summary submitted to ECC on May 15, 2018 that the weighted average cost of gas equalization arrangement may be held in abeyance for the time being. While agreeing to the recommendations , the ECC had approved that the weighted average cost of gas equalization shall be held in abeyance till such time

the committee comprising members from Petroleum Division, Finance Division, Planning Development and Reforms Division and Ogra submit its recommendation to the ECC.

The Petroleum division in its summary moved to Economic coordination Committee scheduled on Tuesday said that it had examined the entire scenario in detail and proposed that the existing arrangement for equalization of cost of gas inked on September 22, 2003 may be amended to allow intra-company adjustment in such a manner that the revenue surplus of one company whosoever may be transferred to other company to the extent the revenue deficit of the latter is entirely eliminated. This revised agreement will become effective from July 1, 2018.

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