Cost of gas pipelines to be ‘ring fenced’


Cost of gas pipelines to be ‘ring fenced’ ISLAMABAD: The Oil and Gas Regulatory Authority (Ogra) on Wednesday said natural gas consumers have been exempted from bearing the Rs101 billion cost of laying pipelines for Regasified Liquefied Natural Gas (RLNG).

It said that in its recent determinations for the revenue requirements of two gas utilities — the Sui Northern Gas Pipelines Limited and Sui Southern Gas Company — the regulator had followed a decision of the federal government to ‘ring fence the cost of pipelines’ for transportation of RLNG instead of making it part of the weighted average cost of gas for natural gas consumers.

The “costs related to imported RLNG would be ring fenced as per federal government decision and indigenous gas consumers shall not be burdened”, Ogra said, adding that “only the consumers of imported gas would bear the costs related to its infrastructure”. The regulator said: “The consumers of locally produced gas that mainly include domestic consumers are duly protected through ring fencing as per the government decision.”

The costs related to imported pipelines would be exempted as per government decision

The government had directed Ogra in February this year that LNG pipeline projects will be included in the asset base of gas companies subject to condition that RLNG pricing will be ring fenced and all directly attributable costs will be charged/recovered from RLNG consumers without affecting consumers relying on domestically produced gas. Finance costs incurred in creation of RLNG infrastructure of national importance should be allowed as admissible expense in the revenue requirement of the utility companies.

Based on these directives, the regulator allowed cost of transmission pipeline assets related to RLNG amounting to Rs17.5 billion for SSGCL and Rs22.5bn for SNGPL for the current fiscal year with the order that this transmission pipeline costs related to RLNG is to be recovered from RLNG consumers only.

The government had previously imposed Gas Infrastructure Develop­ment Cess (GIDC) with the specific objective of developing pipeline infrastructure to cater for the requirement of imported gas and has so far collected more than Rs200bn from industrial, fertiliser and commercial consumers but later utilised this amount as part of the federal budget.

Therefore, it instructed the gas utilities to borrow funds from the banks against sovereign guarantees of the federal government and treat these funds as part of the revenue requirement of the gas companies. In the current phase, the government has decided to charge consumers of the two gas utilities Rs101bn to partly finance pipeline network.

Ogra had earlier opposed the recovery of Rs10bn from consumers through tariff, saying the pipeline projects should be financed out of the GIDC already being collected from consumers.

The regulator believed that it could not allow “double taxation” through gas tariff under the GIDC law. Consumers, who were already paying GIDC for pipeline infrastructure, could not be burdened again with financing for repayment of Rs101bn loan along with 17 per cent return on assets to be created by the gas companies through these loans.

But the finance minister had prevailed upon the regulator, ordering it to not instruct the government what taxes it can and cannot impose, and for what purpose. “Where should we bring this money from? It’s government prerogative to decide from where to raise money and where to spend,” he was quoted as saying.

The regulator previously believed that on the basis of its own law and supreme court orders, it could not allow double charges for the same purpose under the law but if the government issued policy guidelines it would have to implement them.

Those policy guidelines were subsequently issued. The government believed that projects like construction of pipelines under Turkmenistan, Afghanistan, Pakistan and India (TAPI), Iran-Pakistan and Karachi to Lahore and Gwadar to Nawabshah for transportation of LNG and natural gas required Rs600bn while the government had so far collected around Rs200bn only.

The government had given undertakings to parliament and the courts that the tax (GIDC) would be used to construct gas pipeline network. The GIDC is being collected from various consumer categories — except residential consumers — for more than five years now with the sole objective of arranging funds for gas pipeline infrastructure to facilitate utilisation of imported gases from LNG and proposed pipelines from Turkmenistan and Iran.


Leave a Comment