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LNG defined as petroleum product

LNG defined as petroleum product

ISLAMABAD: The government on Thursday defined liquefied natural gas (LNG) as petroleum product, instead of natural gas, just to bypass the legal requirement of public hearing by the regulator for its pricing.

“According to the new arrangement RLNG will be treated as a petroleum product and its pricing can be carried out in line with the prevailing practice for petrol/diesel pricing on monthly basis,” said an official statement on Thursday.

A decision to this effect was taken at a meeting of the economic coordination committee (ECC) of the cabinet presided over by Finance Minister Ishaq Dar.

Read: Oil, gas companies ordered to treat natural gas as LNG

Throughout the world, LNG is defined as natural gas product, and not as oil product, said a senior official of the Oil and Gas Regulatory Authority (Ogra). He said the natural gas and Ogra laws required the pricing of natural gas through public hearing, as repeatedly pointed out by the regulator, but the petroleum ministry wanted its pricing without going through the hearing process and found the easy way out.

Asked if the purpose was to save time because of monthly imports, he said the National Electric Power Regulatory Authority (Nepra) had been setting fuel prices through public hearing every month and the same could have been done by the Ogra in case of natural gas. He said natural gas and oil had different treatments in the constitution of Pakistan and the new definition could be challenged in courts.

The official statement, however, said the amendment would be required in the Petroleum Products Ordinance 196, as proposed by a committee comprising secretaries of finance, petroleum, law and justice and member gas of Ogra. While doing so, LNG would be added in the schedule of products under the PPO 1961, an official explained.

Also read: Gas company chief ordered to sign LNG deal or pack up

In fact, some other recommendations of this committee as proposed by the petroleum ministry were also approved. For example, it was also decided that transportation charges for LNG would be determined by Ogra for the gas utilities and these charges would be treated as operating income. The gas companies had been demanding that half of LNG transportation charges should be treated as non-operating income to improve their balance sheets which was not allowed by the Ogra.

The ECC also decided that unaccounted for gas (UFG) losses would be approved by the Ogra for the purpose of cost build-up in RLNG’s delivered price at the doorstep of consumer on the pattern of natural gas prices. The Ogra was separately being asked through policy guidelines to allow higher UFG in consumer tariff to ensure profitability of inefficient gas companies.

The ECC also approved cost build up items like LNG price DES (delivered ex ship), margin for PSO, terminal charges, SSGC’s administrative margin for LNG supply agreement, SSGC’s cost of service and transportation charges, SNGPL’s cost of service and transportation charges, transmission and distribution losses.

It also allowed build-up of the higher transportation cost of LNG being imported through floating storage and regasification unit (FSRU) because of non-availability of normal LNG carriers due to failure of the government and its agencies to make prior arrangements for LNG purchase and shipments.

The ECC also approved the import of 100,000 tons of Urea fertiliser for Kharif season 2015 (April-Sept 2015) and enhanced imported supply of 82,000 tons approximately under SABIC (Saudi Basic Industries Corporation) facility within the earlier allocated amount.

Moreover, the ECC allowed agreement between EAD and SABIC in order to ensure timely arrival of urea fertiliser for the Kharif season 2015. The ECC desired that steps should be taken to improve domestic production of Urea which could help cut down the country’s import bill.

On a proposal put forth by the Privatisation Commission, the ECC approved the release of two months’ salary (Rs. 1 billion) for employees of the Pakistan Steel Mills. It was also decided that a revised realistic operational plan of PSM, containing the exact funding requirement, shall be presented to the ECC of the cabinet after it had been duly recommended by the PSM board.

The ECC also approved in principle the signing of Master Agreement and Power Purchase Agreement of CASA-1000 Project subject to approval by the Central Development Working Party.

The meeting also allowed the export of wheat on government-to-government basis on existing conditions. On Jan 23, ECC gave permission to Sindh and Punjab to export 0.40 million tons and 0.8 million tons of wheat with a transport rebate of $45 and $ 55 per ton respectively, but the transactions were allowed only through private exporters.

The ECC deferred approval of Ramazan Package pending an examination of cost estimates.

Published in Dawn, April 24th, 2015

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