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ISLAMABAD: Petroleum Division has sought Rs 118.75 billion supplementary grant as subsidy and balance available under the head of subsidy to domestic consumers through SNGPL for RLNG supply, and inclusion of LNG diversion cost in the annual determination of Estimated Revenue Requirement (ERR), as well as, in the Review of Estimated Revenue Requirement (RERR) of the gas companies, sources close to Secretary Petroleum told Business Recorder.

The proposal is to be submitted to the Economic Coordination Committee (ECC) of the Cabinet for consideration, days after the gas companies have started gas load shedding across the country.

Pakistan State Oil Company Limited (PSO) and Pakistan LNG Limited (PLL) are engaged in import of Liquefied Natural Gas (LNG) in the country to meet the deficit in gas demand and supply.

The re-gasified LNG (RLNG) is predominantly supplied to the consumers by Sui Northern Gas Pipeline Ltd (SNGPL) and a smaller volume to the consumers of Sui Southern Gas Company Ltd (SSGCL). On SNGPL the major consumer of RLNG is power plants which on annual average consume up to 70% of RLNG whereas balance of RLNG is supplied to industry export, industry non-export, fertilizer, commercial sector, CNG, cement and domestic (supply volume increases in winters). On SSGCL network, RLNG is supplied to K-Electric, industry export/ non export and CNG.

Rs20bn supplementary grant for PSO approved by ECC

Sharing the details, sources said, during period, Nov-22 to Feb-23, maximum LNG will be imported by PSO in terms of number of LNG cargoes under long-term contracts with Qatar Energy which are as follows: (i) November- 22, 9 cargoes; (ii) December- 22, 9 cargoes; (iii) Jan- 23, 9 cargoes; (iv) Feb-23, 8 cargoes and;(v) March-23, 8 cargoes, whereas PPL will import one term cargo each in December-22, January, Feb and March -23. This implies that in November -22, total number of LNG cargoes will be 9, December, 10 Jan-23 10, Feb, 9 and March, 9 respectively.

Under the term contracts, the delivered cost of each cargo at present price for October, 2022 comes out to be $ 45 million so the cumulative financial impact of forex on 10 cargoes comes to around $ 450 million each month.

Power sector is the largest consumer of RLNG which on a yearly average consumes up to 70 per cent of imported LNG while rest of the LNG is sold to other consumers. The current OGRA notified RLNG tariff for November is $ 14.4387 per MMTBU.

As evident from above, PSO is importing 8-9 LNG cargoes per month whereas as per the executed contracts with LNG suppliers, PSO is obligated to clear the invoice on 15th day after completion of unloading of cargo and 10th banking day after receipt of invoice from supplier whichever is later. PSO has furnished their projected net Liquidity requirements month-on-month basis during Nov-22 to Mar-23 which are as follows, i.e., Nov-22, Rs 355 billion, December, 403 billion, Jan-23, Rs 447 billion, Feb, Rs 511 billion and March Rs 548 billion whereas available funding for November -22 will be Rs 285 billion, December, Rs 285 billion, Jan-23, Rs 285 billion, Feb, Rs 285 billion and March, Rs 285 billion. The net requirement for November -22, Rs 70 billion, December ,Rs 118 billion, Jan-23, Rs 162 billion, Feb-23, Rs 226 billion and March Rs 263 billion.

PSO’s LNG import volume up to 92 per cent is sold to SNGPL network and 8 per cent on SSGCL network.

According to Petroleum Division, SNGPL will likely face issues for full cost recovery of RLNG from domestic sector whereas sales are incurred at average indigenous gas price of Rs 450 per mmbtu.

In addition to this, LNG sales to two fertilizer plants namely Agirtech and FatimaFert are being made at ECC approved concessionary price of Rs. 839/mmbtu which is resulting in subsidy accumulation as budgeted subsidy of Rs. 15 billion with Industries & Production Division is only sufficient to meet subsidy claims up to August, 2022 whereas the subsidy claims for the month of September 2022 are overdue. Against receivables from power plants, CPPA-G has committed to timely clear the invoices during winter months, which includes arrears and forthcoming payments to the tune of Rs 175 billion during November 2022 to March 2023. In respect of sales tax refunds, it would be up to the FBR to process it on monthly basis after validating the claims of SNGPL.

During the current financial year, two subsidies have been budgeted in the head of Petroleum Division, i.e., Rs. 40 billion for provision of gas/ RLNG to export industry at a fixed price of $9 per mmbtu whereas Rs. 25 billion has been budgeted against diversion of RLNG to domestic sector. The subsidy claims for the export industry are being processed upon receipt of actual billing after the close of billing month. In respect of subsidy against diversion of LNG to domestic, which commenced in FY 2018-19 with the approval of ECC, diversion cost and during last four winter seasons an accumulation of tariff differential rose to Rs. 174 billion by May 2022.

According to Petroleum Division, against the accumulation of LNG diversion claim of Rs 174 billion for FY 2019 to FY 2022, Government released Rs. 60.692 billion by the end of FY 22 which was provided as supplementary grants under the subsidy head of Petroleum Division; while, during CFY, an amount of Rs. 6.15 billion was released against budgeted subsidy of Rs.25 billion leaving a balance of Rs. 19 billion. For anticipated RLNG diversions during Nov-22 to Feb-23 an amount of Rs. 105 billion has been estimated for supplying costly LNG to domestic consumers on SNGPL network to meet demand during winter months.

As of October 31, 2022 SNGPL owes an amount of Rs. 249 billion and Rs. 135 billion against LNG purchases from PSO and PLL, respectively. The major portion of SNGPL’s receivables against LNG sales is on account of diversion of LNG to domestic sector, i.e., Rs. 109 billion and from power plants which is Rs. 146 billion principal amounts only.

Foregoing position in view is in order to enable PSO to remain afloat in its payment obligations to LNG suppliers, as well as, to avoid any threat towards breakdown of LNG supply chain. Petroleum Division has submitted following proposals for consideration of the ECC: (i) balance of Rs. 18.75 billion available under the head of subsidy to domestic consumers through SNGPL (RLNG), in the budget of Petroleum Division may be released in one go to SNGPL against its outstanding claims of LNG diversion of Rs. 109 billion; (ii) Rs. 100 billion may be provided as supplementary grant under the head of subsidy to domestic consumers through SNGPL (RLNG) for meeting SNGPL’s accumulated and anticipated LNG diversion cost to domestic consumers; (iii) OGRA may determine and notify the RLNG sale price under section 438 of the OGRA Ordinance, 2002 based on the prevalent Guidelines issued by the Government from time to time on “Sale Price of RLNG” for the RLNG consumers of SSGCL, SNGPL and PLL; and (iv) for the recovery of the balance cost of LNG diversion arising out of proposal and similar recurring cost in future, OGRA may include the cost of LNG diversion in the annual determination of Estimated Revenue Requirement (ERR), as well as, in the Review of Estimated Revenue Requirement (RERR) of the gas companies.

Copyright Business Recorder, 2022


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