Power gas valuing compromise

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With a gas price hike of 7-14 per cent due within the first week of next month as needed under a determination of the Oil & Gas regulatory agency (Ogra), the govt has started thinking a touch differently. Finally, it’s decided to start out giving price signals to consumers supported energy availability and its cost of supply.

To begin with, it might be introducing a kind of punitive tariff, described in official jargon as inverse tariff, for quite 40pc of higher-end residential gas consumers in winters — November to February — to force them to offer up gas consumption for water and space heating. This partially would discourage extravagant waste of a scarce domestic source and its expensive import in exchange .

As a trade-off, it’s offering a comparatively cheaper electricity tariff on incremental consumption to residential, commercial and general consumers to encourage them to use more electricity that it believes is in surplus at the present and generate capacity payments for unutilised capacity. The scheme offers a minimum of Rs7.40 per unit discount on additional consumption and only those using above 300 units per month would benefit.

The scheme offers a minimum of Rs7.40 per unit discount on additional consumption and only those using above 300 units per month would benefit

It may be an insufficient solution to challenges in gas and electricity sectors and should involve shortcomings at this stage but must be expected to evolve over time to a perfect energy mix and pricing model for all energy sources that aren’t only fair, just and equitable but sustainable also . For that, all competing fuels — local and imported gas , coal, fuel oils and LPG — would need to be examined equally on the idea of cost and output per molecule.

In the meanwhile, the govt may need to examine the supply and affordability of efficient appliances within the market that encourage consumers to shift from gas to electricity for space and water heating for economic reasons.

The Ogra has for years been asking the governments to charge a minimum of truth cost of gas supply, instead of a highly subsidised rate, to each consumer category but political compulsions had restrained any change. In fact, all political parties had been extending a pipeline network that they increasingly did not ensure gas supplies.

The gas companies had an unfair vested interest in system expansion because they get a return on asset albeit it’s non-productive and incomplete, instead of on the sale of their product — gas — and hence haven’t any incentive to be efficient.

No wonder, Ogra has advised the general public representatives and therefore the government to return up with policy guidelines for competition based development and expansion of gas national grid and new residential gas connection in sight of the expiry of the monopoly of the 2 gas companies — Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern gas service (SSGC).

“Please be advised that exclusivity of the gas companies to work in franchise areas is not any longer valid and hence new development schemes are to be awarded on a competitive basis,” it had written. there’s no beginning thereon front though.

In its recent gas prescribed price determination, the Ogra has placed on record that the last seven-year performance showed SNGPL couldn’t even provide connections to even 390,000 once a year but was now demanding over Rs45 billion for brand spanking new connections of 1.2 million. “It is that the obligation of gas companies to make sure that only economically, technically and commercially viable projects are planned and proposed for seeking approval of the relevant authorities on merit keeping in sight all relevant factors unless funding for such projects is formed by the govt to form them viable, but with due reference to the gas supply demand projections and gas companies’ obligations towards security and continuity of supplies,” the Ogra said.

But despite frequent problems with gas shortages and pressure drops faced within the country in total disregard and contravention of the license conditions, the gas service had not devised any strategy or action decide to resolve the pressure drop problems with the prevailing consumers and potential new consumers. It “exhibited a scarcity of proper planning and vision to systematically and efficiently serve its existing customers” and was “adding to the miseries of its consumers thanks to problems with pressure drop and increasing gas shortages.”

In addition, an examination of the last seven-year data indicated that SNGPL had been ready to install 2.53m gas connections against 3.50m allowed connections, thus quite 969,000 of gas connections limit remained unutilised only during the last seven years, besides the entire admitted pendency of over 2.8m applications. things isn’t so bad within the SSGCL area in terms of connections pendency but problems with pressure drops and gas shortages are almost of an equivalent nature.

The regulator has also recommended that gas companies be made to make sure the completion of already approved network development plans and new gas connections already funded by the consumers through tariff rather than pressing the regulator to burden consumers with imprudent costs of unreasonable targets.

While the country is facing a gas shortage, particularly in winter, as indigenous gas production is on endless decline, the gas companies are reluctant to allocate pipeline capacity to the private sector to usher in imported gas, leading to a frequent drop by system pressure, gas load shedding and cargo management issues.

On the opposite hand, the govt has not been ready to deliver on the weighted monetary value of gas (WACOG) thanks to provincial opposition. Resultantly, the availability of pricy imported liquefied gas (LNG) to residential consumers within the winter months has already increased SNGPL’s circular debt to about Rs130bn and counting.

But once the WACOG is achieved, it might end in the continuation of the prevailing monopoly of the general public sector gas companies. The delivered cost of local gas currently averages about Rs670 per metric million British thermal unitscompared to Rs1,400 to Rs2,200 per unit for imported LNG. After all, if the Sui companies get WACOG of both local and imported gas, no private sector entity would be ready to compete with its expensive imported product.

Gas companies concede that a prudent business model requires a ban on the extension of transmission and distribution systems in new towns and villages until domestic gas production matches the need of domestic consumers and existing industrial and commercial gas demand or their affordability levels increase. However, additional assets even without completion qualify for a depreciated return.

The Ogra has repeatedly been asking the govt to formulate an appropriate policy to “award new gas distribution network projects through some competitive mechanism, which facilitates the new entrants and promote competitive market, bring efficiency and accelerate economic activity with the assistance of personal participation within the gas sector” to increase civil right to all or any gas market players during a fair and transparent manner.

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