Determination of RLNG for KE plant: PD suggests amendments to Second Schedule of PL Ordinance

ISLAMABAD: The Petroleum Division is said to have proposed amendments to the Second Schedule of Petroleum Products (Petroleum Levy Ordinance, 1961) and issuance of guidelines to Ogra for determination of Re-gasified Liquefied Natural Gas (RLNG) for Karachi Electric (KE) for its 900 MW RLNG-fired power plant, sources close to Secretary Petroleum told Business Recorder.

The Economic Coordination Committee of the Cabinet (ECC) in its meeting held on June 14, 2016 approved revised policy guidelines to Oil and Gas Regulatory Authority (Ogra) for determination of sale price of Re-gasified Liquefied Natural Gas (RLNG). Pursuant to these guidelines, Ogra has been determining the RLNG sale price on monthly basis since then.

The existing provisions in the OGRA Ordinance, 2002, and the rules made thereunder, do not provide for determination of consumer sale price of RLNG, therefore, in order to enable Ogra to determine RLNG sale price, RLNG was declared as petroleum product under Petroleum Products (Petroleum Levy) Ordinance, 1961 and the rules made thereunder by way of inclusion of RLNG in First Schedule ‘the list of Petroleum Products’ and inclusion of name of M/s SNGPL and SSGCL in Second Schedule.

OGRA was delegated the power to administer or establish the price of RLNG on behalf of M/s SNGPL and SSGCL. Since June, 2015, Ogra is determining the price of RLNG for sale by SNGPL and SSGCL to their consumers only.

The Cabinet Committee on Energy (CCoE) on March 27, 2020 while considering a summary submitted by the Power Division approved the allocation and firm supply of 150 MMCFD RLNG or as per the requirement shared by KE, through Pakistan LNG Terminals Ltd (PLTL)/Pakistan LNG Ltd (PLL), effective from January 2021to December 2025 at Ogra notified rates.

Subsequently, M/s PLL approached Ogra for determination of sale price of RLNG in respect of its sale to KE. However, Ogra advised PLL that costs attributable to KE as per the terms of Gas Sales Agreement (GSA) being executed between KE and PLL are not admissible to be recovered from RLNG price under the current RLNG pricing regime being not in accordance/consistent with guidelines of the Federal Government.

As reported by PLL, all civil/electrical/instrumentation works, laying of pipeline and metering station have been completed at the site. KE 900 MW power plant’s pipeline connecting with SSGCL’s Custody Transfer Station (CTS) as well as tie-in activity has been completed. KE has already communicated the readiness of facility for injection of RLNG through the pipeline and testing of the line is taking place.

According to sources, it has been reported that GSA between KE and PLL has been finalized and executed while an Interconnection Agreement (IA) between SSGCL and PLL has also been initialed and sent to Ogra for approval.

In order to enable PLL to supply RLNG to KE’s 900 MW power plant and finalize its RLNG sale transaction, Petroleum Division has proposed the following: (a) amendment to the Second Schedule of Petroleum Products (Petroleum Levy Ordinance, 1961). Pursuant to Section 7 of the Petroleum Products (Petroleum Levy) Ordinance, 1961 (i) Federal Government, except for Fifth Schedule, can amend the schedules of the Ordinance by notification in official gazette, therefore, name of PLL may be included in the Second Schedule of Ordinance and OGRA may be delegated the power for establishing/administrating RLNG price on behalf of PLL as per the draft SROs duly vetted by Law Division.

(b) Determination of sale price of RLNG: (i) LNG DES price to be taken as per contract(s) as per existing guidelines;(ii) PLL’s LNG import related costs and port charges to be taken at actual as per the existing guidelines; (iii) PLL’s margin on LNG to be taken as per the existing guidelines; (iv) all the charges under Operation Services Agreement (OSA) including but not limited to capacity charges, utilization charges of terminal as well as retainage to be taken at actual as per the existing guidelines; (v) terminal management fee at actual as per the existing guidelines; (vi) costs associated with interconnection agreement between PLL and SSGCL to be taken as per the agreement; (vii) any other costs under the GSA between KE and PLL to be taken as per the agreement including Operation and Maintenance (O&M) fee for the metering setup; (viii) costs associated with issuance of Performance Security by PLL to KE under Heads of Agreement (HoA); and (ix) transmission loss to be determined and charged at actual as per existing guidelines.

The proposal was circulated to Finance Division, Power Division, Ministry of Planning Development and Special Initiatives, Ogra and Law & Justice Division for comments.

The Planning Division has supported the guidelines however, they have suggested that amendment in Petroleum Product Ordinance 1961 may be made as per the recommendation of Law Division. OGRA holds the view that the proposed amendment may be vetted by Law Division. Ogra has agreed to the guidelines in general, however, they are of the view that cost elements should not be charged twice to existing consumers and only rational cost to be allowed.

Finance Division has endorsed the views of Ogra. Power Division argues that transmission loss and UFG should be considered in existing legal frame work developed by Ogra. Further, KE is to abide by Ogra licence and GSA to carry penalty clauses in case of non-off take by KE. Law Division has vetted the draft SROs.

The Petroleum Division is to request the ECC for consideration of proposals for conveying to Ogra as policy guidelines under Section 21(2) of the OGRA Ordinance, 2002.

Copyright Business Recorder, 2022