Month-wise actual RLNG volumes: Ogra empowered to allow recovery of revenue shortfall

ISLAMABAD: The government has empowered Ogra to provisionally allow the recovery of RLNG revenue shortfall considering the month-wise actual RLNG volumes diverted in the domestic and commercial sectors by SNGPL and any amount available in the deferral account would also be adjusted while actualizing the RLNG sale price, subject to verification of volumes supplied to domestic and commercial consumers.

The decision was taken by the ECC on July 3, 2020 and will be presented before the federal cabinet on Tuesday (today) to be presided over by Prime Minister Imran Khan.

According to Petroleum Division with respect to management of winter gas load-shedding on SNGPL network, the ECC of the Cabinet in its meeting held on November 27, 2018 considered the summary and approved the proposal allowing SNGPL "to inject RLNG volumes for consumption by domestic and commercial consumers, provided OGRA allows volumetric adjustment and financial impact may be made on cost neutral basis, in-line with the ECC's decision of May 11, 2018."

Petroleum Division further stated that pursuant to above guideline, during the winter months of 2018-19, SNGPL injected RLNG to manage winter load of its high priority domestic and commercial consumers.

It was highlighted that as per the ECC approved policy guidelines, OGRA has been determining the sale price of RLNG on a monthly basis whereas M/s PSO is notifying the same. The pricing of RLNG is ring-fenced activity under the Petroleum Product (Petroleum Levy) Ordinance, 1961 and as such all the cost for supply of RLNG is recoverable from RLNG consumers/buyers. Similarly, the pricing of indigenous gas is also ring-fenced and done under the provisions of the Ogra Ordinance, 2002. As such any financial impact of RLNG cannot be parked/recovered through the indigenous gas pricing and vice versa. It was also noted that Ogra determines the pricing of RLNG on a monthly basis whereas the sale price of indigenous gas is notified on bi-annual basis. Due to ring-fenced nature of RLNG and indigenous gas pricing, the sale of RLNG to domestic gas consumers at weighted average domestic tariff/gas sale price on SNGPL network has resulted into a cumulative tariff differential/RLNG revenue shortfall of Rs.73,848/- million for the period July-18 to April, 2020 after adjustment of RLNG impact on cost neutral basis as per the policy, whereby SNGPL sold indigenous gas as RLNG to its customers and recovered some of the revenue shortfall whenever the surplus system gas became available.

SNGPL during the determination of Estimated Revenue Requirement (ERR) of

2019-20 raised the issue with Authority (OGRA); however, OGRA in its decision dated 17.05.2019 deferred consideration of the matter. Later, OGRA vide its letter dated 12.06.2019 conveyed that SNGPL's position is not covered in the decision of Federal Government as stated in Para-1 of the summary. The recovery of entire amount can be effectuated through monthly RLNG price as a cross subsidization in the RLNG sector on the analogy of cross subsidization in system gas tariff in the interest of domestic consumers. In the case of supply of RLNG to export-oriented sector, the recovery of additional RLNG impact will become part of the Government subsidy being provided to them.

For the winter months 2019-20, SNGPL had worked out diversion of RLNG in the domestic sector to meet the gas demand as follows: November 2019- 138 MMCFD, December 2019, 266 MMCFD, January, 2020, 472 MMCFD, February, 2020, 386 MMCFD and March 2020, 130 MMCFD. Petroleum Division stated that based on the above RLNG diversion, an estimated financial impact has been worked by SNGPL, who is facing a revenue shortfall/tariff differential of Rs.73,843 million for diversion of RLNG volumes to domestic sector especially during past two winter seasons. As of now this shortfall has compounded the impact of reduction of system gas from fields with the onset of Covid-19 pandemic which has compelled SNGPL to divert RLNG to meet the demand of domestic and commercial consumers from March, 2020 onwards. The said differential is subject to change based on actual volumes diverted in the winter and summer months and recouping of shortfall during the months when system gas has been sold as RLNG. SNGPL will be required to present a proper case with data sheets before OGRA for validating its claim of RLNG diversion.