The Economic Coordination Committee has approved natural gas sale pricing effective July 1, 2024, to meet a prior condition of the International Monetary Fund (IMF) for a new program.
Sources told ProPakistani that the Petroleum Division has presented the natural gas sale pricing summary in the ECC meeting on meeting held by the Finance Minister on Sunday.
The petroleum division officials informed the forum that the OGRA vide its decision dated 20.05.2024 had issued a determination of Estimated Revenue Requirements (ERR) for FY 2024-25 for both SNGPL and SSGCL respectively.
According to the said determinations, SNGPL requires a revenue of Rs. 607 billion and SSGCL requires a revenue of Rs. 289 billion in FY 2024-25 respectively.
The cumulative revenue requirements of both the Sui companies are Rs. 897 billion for the FY 2024-25.
Pursuant to Section 8(3) of the OGRA Ordinance 2002. The Federal Government is required to advise OGRA revision in the category-wise consumer gas prices within 40 days of the determination, by or before 30.06.2024 so that the revised tariff becomes effective from 01.07.2024.
Further, the amended Section 8(3) of OGRA Ordinance, 2002 (amended through enactment in March 2022) mandates the Federal Government to ensure that the consumer gas sale prices so advised are not less than the revenue requirement(s) determined by the Authority.
At the current notified consumer gas sale prices effective 01.02.2024 the estimated revenues of both Suis companies during 2024- 25 will be Rs. 1,025 billion (SSGCL: Rs. 364 billion and SNGPL: Rs.661 billion) leading to a surplus of Rs. 133 billion (SSGC: Rs. 75 billion, SNGPL: Rs. 58 billion) assuming no change in the current consumer gas prices
In the recent meetings held with the IMF mission for the review of the Stand By Agreement (SBA), notification of the consumer gas prices on 01.07.2024 has been taken as ‘Prior Action’ whereas phasing out of the captive power plants out of the gas grid by January 2025 has been a taken as ‘Structural Benchmark.
It is highlighted that the captive power industry contributes a significant portion of gas and RLNG consumption at higher rates and thus not only provides additional revenues for the cross-subsidy in the domestic sector in the absence of budgeted subsidy but also consumes LNG which often becomes surplus due to erratic off-take of power plants.
Meanwhile, the Commerce Division provided the list of captive power units for seeking details of export implications who have now confirmed that based on data from PRAL 349 units (with 523 gas connections) had exports of US$ 13.31 billion on their title during FY 22.
The IMF mission under review and already part of the Memorandum of Economic and Financial Policies (MEFP) that besides phasing out of the captive power plants, their Indigenous gas tariff would be increased to equate with RLNG tariff Currently, captive power plants are being provided different blend proportions of Indigenous gas and RLNG on the network of SSGCL and SNGPL ie, the proportion of 70:30 on SSGCL and 25:75 on SNGPL which in tariff terms translates into Rs. 3,000 per mmbtu for units on SSGCL and Rs. 3,300/mmbtu for units on the SNGPL network versus the notified RLNG tariff in rupee terms as Rs. 3.550/mmbtu.
However, in line with the commitment to IMF, the gas tariff for the captive power plants is proposed to be revised.
On an annual basis, at the current tariff of Rs. 2.750/mmbtu, the estimated surplus revenue from captive power units is Rs. 76 billion, and at a proposed revised tariff of Rs. 3.000/mmbtu, the surplus would be Rs. 92 billion on an annualized basis, however, pursuant to the commitment made with the IMF at the closure of captive power units by January 2025, there will be a shortfall in revenue requirements for January to June 2025 which amounts to Rs. 47billion.
This shortfall needs to be recouped through price revisions wef. 01.01.2025 after receipt of OGRA’s Review of Estimated Revenue Requirements (RERRs) of both the Sui companies in November-December 2024.
Foregoing in view, the Petroleum Division proposed ECC to revise the present Indigenous gas tariff for the captive power industry from Rs. 2,750/mmbtu to Rs. 3.000/mmbtu.
The Petroleum Division informed that there is no change proposed in the existing consumer gas prices and Suis companies may continue to offer a blend of indigenous and RLNG to captive power units.
According to the Finance Division, ECC approved the proposed gas price sale with effective from July 1, 2024.
