Ogra Sets Transportation Tariff for LNG Shippers

The Oil and Gas Regulatory Authority (Ogra) has set a transportation tariff for LNG shippers, opening the market for the private sector.

Gas utilities currently have a monopoly over the LNG market in Pakistan.

Ogra has determined the transportation tariff of SNGPL for FY 2019-20 & FY 2020-21 under OGRA Gas Third Party Rules, 2018.

Ogra allowed a tariff at Rs 29.58 per million cubic feet (MCF) for the transmission network and Rs 101.75 per mcf for the distribution network.

SNGPL had claimed Rs 38.85 per mcf for the transmission network and Rs 125.77 for the distribution network for FY 2019-20 & FY 2020-21.

The regulator observed that the petitioner (SNGPL) had shown its inability to calculate the capacity of the system in the case of the distribution system.

The regulator noted that the present gap between supply and demand of natural gas, coupled with reduced pressures in the distribution system, are major constraints for calculating the available capacity of the system.

Moreover, while calculating the throughput of the distribution network, the petitioner excluded volumes in respect of gas carried to POL, PPL & Pak Arab, GIC, and UFG of the distribution network.

The Ogra stated that the capacity of the entire network has been taken for transmission and distribution systems separately for calculation purposes, as per the worked example.

The regulator also observed that the approach used by the petitioner based on throughput volume is not in accordance with the provision of TPA Rules, rather it is the petitioner’s own misinterpretation.

The regulator further observed that the third party access regime has been implemented to proceed towards liberalization of the gas industry, foster competition, reduce tariffs, and improve the energy supply situation through additional volume injection by potential suppliers.

This scheme is a win-win situation for the petitioner as well as potential shippers, resulting in additional volumes for supply to customers and addressing major crises of pressure drops and volume curtailment.

The regulator stated that it is important to impress upon the petitioner to facilitate TPA regime and avoid banging on a non-convincing reason of declaring supply to consumers on the distribution network by third parties as unfeasible.

The point has been amply addressed and concluded as being equally feasible for the third parties to supply gas to consumers currently being fed by the petitioner.

During the hearing conducted by the regulator earlier, it was highlighted that the petitioner is enjoying a monopoly in the natural gas market and is not providing the opportunity for other shippers.

Such continued practice by the petitioner would result in the collapse of the entire TPA regime and fail to achieve its objective, the regulator said. The petitioner’s management was requested to provide the details of shippers and their contracted capacity agreed during the last two years.

Prospective shippers are in the market, but restrictions have been imposed by the transporter that shippers cannot supply gas to existing gas consumers.

Moreover, it was argued that since a single pipeline is being used for multiple consumers, how billing volume and pressures would be calculated by the petitioner.

It was argued that the transporter must not unduly gain on account of the differential balancing charges for excess off-takes and vice versa.

Private parties demanded that the Neutral Market Price be determined based on the criteria laid down in the law. It was also urged that the petitioner’s RLNG consumers and shippers be charged the same transportation tariff.

Otherwise, it would create an anomaly and disparity in rates. All cost heads currently being charged on actual for the determination of capacity and utilization charge need to be benchmarked with the best international practices with respective thresholds defined to facilitate ensuring the supply of gas at competitive price levels.

An exclusive guarantee should be provided for complete compliance of Authority’s decisions by the transporter.

In case of any deviation, shippers will be financially affected as their entire working is dependent on OGRA’s decision.

It was demanded that the FG as well as OGRA make efforts to foster a competitive environment for investors; otherwise, new entrants will be discouraged.

The shippers also demanded that they be given a guarantee that their gas will be supplied exclusively to entitled customers, and such gas will not be diverted to other consumers.

They also requested that no restriction on shipper gas supplies to any consumers will be placed or any caveat insinuated on any gas supplies.

During the hearing, it was pointed out that most of the assets comprising of the Transmission and Distribution pipelines and assets being used by the transporter from the last 40-50 years have a nil WDV.

Therefore, the amount of depreciation is insignificant and minimal. It was suggested that it would be fair and equitable that regulated operating assets are revalued, and appropriate depreciation rate based on remaining useful economic lives of operating assets is applied. The concept of net replacement value was also discussed during the hearing.

Overall, the determination of transportation tariff for LNG shippers by Ogra is a significant step towards opening up the LNG market in Pakistan for private sector players.

It is hoped that this move will foster competition, reduce tariffs, and improve the energy supply situation in the country.

The regulator’s emphasis on the importance of facilitating the TPA regime and ensuring compliance with Ogra’s decisions by the transporter is also noteworthy, as it will help ensure a level playing field for all players in the market.