Policy guidelines on LPG air mix: Gas tariff may go up

MUSHTAQ GHUMMAN

ISLAMABAD: Federal government is likely to allow Oil and Gas Regulatory Authority (Ogra) to include cost of LPG mix uniform cost of gas formula aimed at computing the Weighted Average Cost of Gas (WACOG) which will ultimately increase gas tariff.

The Economic Coordination Committee (ECC) of the Cabinet in 2007 had approved policy guidelines on LPG air mix, CNG or LNG based pipeline distribution projects undertaken by Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL).

After the approval, Ogra was issued following guidelines:

(i) these guidelines are applicable only to stand-alone distribution projects for supply of piped LPG air mix, LNG or CNG to retail consumers on specific directions of President, Prime Minister, Cabinet or the ECC of the Cabinet; (ii) retail tariff applicable in case of these projects will be the same as that of natural gas being supplied to various categories of consumers through existing transmission and distribution network; (iii) all expenditures incurred on installing, maintaining and operating these projects including cost of gas shall be included as permissible expenditure in the revenue requirements of the respective gas companies; (iv) gas utilities shall ensure prudence in all such expenditures to the satisfaction of the regulatory authority and also ensure ring fencing of all capital and revenue expenditures, including all cost allocations in respect of each such project; and (v) SSGCL and SNGPL will be entitled to a rate of return equal to the rate of return applicable for gas operations.

Currently, SSGCL is supplying LPG air mix to Gwadar (Balochistan), Noshki (Balochistan) and Kot Ghulam Muhammad (Sindh). LPG air mix plant has also been installed at Sorab (Balochistan) which is yet to be commissioned.

The sources said that in view of the gas shortages resulting in supply curtailments to various sectors, the gas companies are contemplating to extend the supply of LPG air mix to new areas as well as existing consumers as a peak shaving strategy. However, the approved policy guidelines do not provide flexibility to the gas companies to initiate such projects without specific directions of President, Prime Minister, Cabinet or the ECC of the Cabinet.

With a view to providing flexibility to gas companies for initiating such projects, the existing policy guidelines will be amended in the following way:

(i) these guidelines are applicable to distribution projects for supply of piped LPG air mix, LNG or CNG by the Sui gas companies (SSGCL/SNGPL) to retail consumers, subject to approval of their Board of Directors (BoDs) and the clause “SSGCL and SNGPL will be entitled to a rate of return equal to the rate of return applicable for gas operations,” will be replaced with “Ogra will include the cost of LPG air mix in uniform cost of gas formula in order to compute the WACOG”.

The sources said, injection of LPG air mix into the system is expected to increase the weighted average cost of gas from Rs308.95/mmbtu to the following level depending upon the volumes injected: 10 mmcfd LGP air mix volume will result in Rs 315.04 WACOG, increase will be Rs 6.09 with 1.97 percent per mmbtu increase. The WACOG of 50 mmcfd air mix volume will be Rs 338.91-increase Rs 29.96 with increase per mmbtu 9.70 percent. 100 mmcfd air mix volume- Rs 368.72- increase Rs 59.77- average increase 19.35 percent per mmbtu and 150 mmcfd LGP air mix gas – resultant WACOG will be Rs 398.53-increase 89.58 showing 28.99 percent per mmbtu increase.