Circular debt: SNGPL blames fertilizer sector, domestic consumers

ISLAMABAD: Sui Northern Gas Pipeline Limited (SNGPL) has termed fertilizer industry and domestic consumers as key contributors in its rising circular debt, which is about to touch Rs 575 billion by next month.

SNGPL has shared this information with Director General (Gas) Ministry of Energy (Petroleum Division), in response to a letter from the Prime Minister Office (PMO) about challenges in gas sector.

According to the gas utility, for indigenous gas business, there is a cross subsidy mechanism (non-budgeted subsidy) in place wherein power, CNG, industry and commercial sectors subsidize the fertilizer and domestic sector(s).

Over the years due to decline in indigenous gas reserves coupled with increasing share of domestic and fertilizer sectors, the cross subsidy generated fell short by nearly Rs 350 billion during the last seven years.

The gas company argued that delay in increase in adequate consumer gas prices, particularly in domestic and fertilizer sectors during the last several years, has led to accelerated growth in circular debt by approximately Rs. 85 to Rs.100 billion per annum.

“This is exclusive of RLNG being diverted to domestic sector on which subsidy under present price structure is estimated to be around Rs 90 billion per annum,” the utility added.

As of now the amount of circular debt in gas sector for indigenous gas has reached to almost Rs. 375 billion while that of RLNG is expected to reach Rs 200 billion by end of March 2022.

The gas utility has recommended that domestic prices need to be revised immediately, at least equivalent to the cost of gas of distribution companies and prices determined by OGRA need to be implemented with immediate effect.

The Gas company also proposed ‘Introduction of WACOG’, which according to it can also go a long way in coming up with a singular pricing mechanism and quick settlement of continuously deteriorating receivable situation. This mechanism has already been approved by the National Assembly recently.

Talking about erratic assessment of LNG demand, SNGPL said that almost of 60% of imported RLNG is consumed by the power sector. SNGPL finalizes ADP and places order with RLNG suppliers, i.e., PSO & PLL incorporating the demand of all sectors including power, fertilizer, CNG and industrial sector.

The gas company further stated that the PSO is supposed to place order for spot procurement at least 120 days in advance whereas the major RLNG consuming sector, i.e., power usually does not convey firm demand at the start of the year. Even the given demand is frequently changed by Power Division during the year which is a major caveat in assessing accurate RLNG demand. Similarly, during winters, gas requirement of domestic consumption abruptly increases depending upon severity of weather and hence diversion volume cannot be assessed such a long period in advance.

Our upstream RLNG supply contracts are on 100% firm take or pay basis whereas downstream RLNG supply to Government Power Plants (GPPs) was on 66% take or pay basis which has also been eliminated from start of year 2022 as per the ECC decision. RLNG supply to other power plants, fertilizer, CNG and industrial sector are on as available basis.

SNGPL further contended that demand supply issues in LNG supply chain can only be addressed with back to back firm contracts all the way from upstream LNG suppliers to downstream consumers. As regards, new policy for allocation of indigenous gas and RLNG, SNGPL said this is the purview of MoE.

Copyright Business Recorder, 2022