ECC considers guidelines today

MUSHTAQ GHUMMAN

ISLAMABAD: Economic Coordination Committee (ECC) of the Cabinet, which is scheduled to meet on Tuesday (today) with Finance Minister, Dr. Abdul Hafeez Shaikh, in the chair, will consider contentious guidelines for the price formula for Compressed Natural Gas (CNG).

Official documents reveal that in order to remove the present distortion in the price of CNG and competing fuels price of CNG would not be less than 80 percent of petrol price. For the purpose of ensuring parity of 80 percent, as opposed to the current 60 percent, appropriate adjustment in Gas Infrastructure Development Cess (GIDC) will be made.

Oil and Gas Regulatory Authority (Ogra) and CNG Association have failed to evolve a consensus over the pricing mechanism as directed by the Supreme Court.

According to the official documents to be discussed in the ECC meeting, the apex court on November 19, 2012, had directed Ogra to come-up with a pricing formula in consultation with all stakeholders. After extensive deliberations with all stakeholders in all major business centers of the country, Ogra submitted its recommendations and sought policy guidelines from the federal government.

In Pakistan, the consumption of gas for CNG has witnessed an explosive growth particularly in the last 6-7 years. Unfortunately, much of this growth has occurred at a time when the supply of gas has not witnessed any significant increase. Accordingly, the growth is met by denying gas to critical sectors of the economy most notably power and fertilizer. At present, gas demand of CNG sector is nearly 16 percent (437 mmcfd) of the system (pipeline) gas (2796 mmcfd) which is a huge burden on country’s limited energy resources.

Ogra argues that this situation has emerged due to the fact that government policy in this area has either been missing or made on an ad-hoc basis. At different points in time, government has promoted use of CNG, issued ad-hoc pricing guidelines, banned the import of CNG kits and cylinders together with setting up of new CNG stations and linked the price of CNG to the price of petrol. It is imperative that detailed policy guidelines are developed for the CNG sector so that clear signal is given to CNG users about the future of this fuel.

The following policy guidelines are, therefore, developed for the CNG sector for the approval of the ECC of the Cabinet: (1) The pricing of CNG will be aligned to that of distribution of other fuels like petrol and diesel, where two margins are allowed, one to Oil Marketing Companies (OMCs) and Dealers (Petrol pumps) with the difference for value addition (compression) that takes place at the CNG stations. Thus the following guidelines may be followed for this purpose: (i) cost of gas as selling price for CNG sector (b) value added cost for compression (c) margin (equal to sum of OMCs and dealers margins for petrol and diesel as approved by the federal government from time to time  (d) Gas Infrastructure Development Surcharge (GIDC) (e) sales tax = maximum price to the consumers.

(2) The value-added cost will be determined by Ogra through a process of public hearing and forensic cost audit of CNG stations; (3) For the purpose of spreading the benefits of the cheap and clean transport fuel to larger public, use of CNG will be restricted for public transport as defined in law.

(4) The current ban on import of CNG kits and cylinders will continue until further orders.

(5) The ban on setting up of new CNG stations will continue until further orders.

(6) In course of time, all CNG stations will be incentivized to convert themselves to LPG.