Setting aside concerns of major multilateral donors, the federal government has planned to increase the supply of liquefied petroleum gas (LPG)-Air mix to address the energy crisis – a move that could raise the price of natural gas by as much as 28.9% for consumers across Pakistan.
LPG is more expensive than natural gas, but what is surprising is that the price hike will occur despite injecting only 150 million cubic feet per day (mmcfd) of LPG-Air mix in the existing gas utilities system.
The World Bank and other donors of monetary aid for the energy sector have been demanding the government not to go ahead with the proposal. But the Economic Coordination Committee (ECC), in its recent meeting, approved the plan of injecting the mix in the system.
Official documents tabled before the ECC, which are available with The Express Tribune, reveal that under the new guidelines, the Oil and Gas Regulatory Authority (Ogra) will include the cost of LPG-Air mix in the uniform cost of gas formula, in order to compute the weighted average cost of gas. As a result, gas prices will surge by 1.97% by injecting 10 mmcfd of the mix, 9.70% for 50 mmcfd, 19.35% for 100 mmcfd and 28.9% increase in gas prices by injecting 150 mmcfd of LPG-Air mix. The weighted average cost of gas will increase from Rs308.95 mmcfd to Rs398.53 mmcfd.
The water and power ministry has expressed its reservations over the proposed hike in prices by injecting 150 mmcfd of LPG-Air mix. It instead supports initiatives to enhance gas supply for power generation projects, like importing liquefied natural gas. “However, the impact of the proposal on other consumers like the power sector should be taken into consideration,” the ministry added.
Ogra observed that such projects were very capital intensive and the pricing of alternative fuel was higher than that of natural gas.
“If the entire scheme is handed over to the gas producers and suppliers, they are bound to opt for expensive infrastructure development and assets, since they are operating on returns of an asset-based structure. Similarly they will also considerably increase their expenditures, since the same are to be passed on to the consumers,” Ogra claimed. It added that it must be understood that such broad based powers, if given to the gas companies, would be extremely detrimental to natural gas consumers, as they would have to pay high tariffs, resulting in skyrocketing returns on the assets.
According to the proposal, the retail price applicable, in case the LPG-Air mix project goes through, will be the same as that of natural gas being supplied to consumers of all types through the existing transmission and distribution network. All expenditures incurred on installing, maintaining and operating these projects, including the cost of gas will be included as permissible expenditure in the revenue requirements of the respective gas companies. Sui Southern Gas Company and Sui Northern Gas Pipelines Limited will be entitled to a rate of return on the LPG-Air mix project, equal to the rate of return for natural gas operations.
The ECC was informed that in view of the acute shortage of gas, companies were contemplating to extend the supply of LPG-Air mix to new areas, as well as to existing consumers as a peak-shaving strategy.
Published in The Express Tribune, July 7th, 2012.