Highest gas wellhead prices, LPG margins making Pakistani gas costly for consumers

Islamabad-The highest gas wellhead prices and LPG margins in the region is making Pakistani gas more expensive for the consumers. The wellhead prices of domestic gas and margin on LPG is higher respectively 33 per cent and 26 per cent than the regional countries, data available with The Nation reveals.

The government seems to be focusing more on LNG prices and ignoring the high margins and wellhead prices on LPG and Natural gas respectively. By reducing the LPG margins and Wellhead gas prices the government can reduce the prices of LPG and Natural gas by 25 per cent and 33 per cent respectively for the consumers, official data reveals. For example, for the month of October, Indian consumers were paying Margin on LPG equivalent to Pakistani Rs6.94 per KG whereas Pakistani consumers were paying Rs17 per KG. Due to highest margins Pakistani consumers paid Rs33 billion more than the Indian Consumers for the same quantity of LPG. The windfall profit by Marketing, Distribution and Transportation margins were around 11.6 billion during the month of October. Similarly in comparison with Bangladesh, Pakistani LPG was Rs13.06 per Kg expensive in October. It means that in October Pakistani consumers paid Rs16.325 billion more as compared to the LPG consumers of Bangladesh.

Breakup of Marketing, Distribution and Transportation Margin given by OGRA for the local LPG includes Marketing Margin Rs17,000, Distribution Margin Rs10.000 and Transportation Rs8,000/MT. The Marketing and Distribution Margin of LPG companies is Rs27,000 per MT which is around 1260 percent higher than  he Margin on Kerosene Oil which is just Rs 2004 per MT. Similarly the wellhead price of gas is also higher in the region which is currently at $4.3 per MMBTU. For the rest of the regions it roams around 1.5 to 2.5 per MMBTU. APTMA via a letter written to Ogra last week has pointed towards the high wellhead gas prices and requested the regulator to reduce it. The current average prescribed prices of gas is Rs750 per MMBTU which includes Rs526 cost of the gas. By reducing the wellhead prices Rs235 per MMBTU will help reducing the gas prices for the end consumers.

As per Ogra, cost of gas determined should be Rs217,332 Million, and APTMA requested the regulator to re-visit its decision dated 14-July-2020, namely of awarding exorbitantly high Cost of Gas due to exorbitant Gas wellhead prices without reconsidering that these are neither judicious as per 6(q) & 8(2) of the OGRA Ordinance 2020 nor befitting to Articles 3, 3(2).a, 5.2, 25.1, 29.1, 38(a), 38(b), 38(e) of the Constitution, to say the least. 

Giving the background for high wellhead prices, APTMA has noted that in 2012, Federal Government under the auspices of Petroleum Policy 2012 gave ‘high incentive in terms of higher gas prices’ to motivate the oil & gas exploration & production companies (E&P companies) to plough back the incentive into exploration, so that indigenous gas production is increased in the country and thus saving of FEX and lowered gas prices for the consumers by not important expensive LNG. According to the publically available data the Gas Production has decreased over the years. The indigenous gas production has dropped from 4,126 to 3,597 million cubic feet per day. Prime facie, it means that the incentive (subsidy) from the consumers has not been used where it should have been used. OGRA need to take notice of the injudicious wellhead gas prices, APTMA said.  The decrease in Gas production is a glaring witness to the fact that incentive/subsidy given E&P companies have not resulted in the desired outcome, i.e. higher indigenous gas production. 

OGRA may not pass on the exorbitant, unjust and injudicious wellhead price to the consumers without itself owning it. OGRA being an independent quasi-judicial body is obligated to ensure that each and every figure, decision, word and works it puts in the decision is its ownership. OGRA may not elude by stating that DG PC is the upstream regulator therefore, they are responsible. The last regulator (OGRA) needs to own all of what is determine or none; as per Article 6(1) of the OGRA Ordinance 2002 where, the law of the land makes it ‘exclusively responsible’. Either OGRA is an independent regulator as per Article 3(2) of the OGRA Ordinance 2002, a quasi-judicial entity; if not or proximal then it is a non-entity; devoid of existence. No other regulator or authority is superior to OGRA, other than the High Courts and Supreme Court. 

APTMA requested OGRA to amend its decision of 14-July-2020 on exorbitant, unwarranted, unjustified, injudicious Gas wellhead price and bring it in line with natural norms. We suggest that it may recalculate Annex 7, 8 & 9 of the Petroleum Policy 2012 by the multiplier to the Market Prices 39 per cent, 37 per cent and 35 per cent instead of 69.66 per cent, 66.50 per cent & 63.33 per cent. High Cost of Gas via Exorbitant Gas Well-head price is depriving Pakistan from economic recovery. Funds are flowing from all consumers to a few Oil and Gas exploration and production companies, in futility. Why should Pakistan export & job market and economy suffer severely? The Export oriented companies have been hard hit by cost of gas. Reduction of Rs 235/MMBTU in prescribed price is requested, said the APTMA letter. 

If the government wants to provide cheap fuel to domestic, commercial and industrials consumers it has to axe the profits of handful of people and companies and reduce the hefty margins and wellhead prices.