ISLAMABAD, (TLTP) Seeking comments over a drafted study on Liquefied Natural Gas (LNG) sector in Pakistan from the lens of competition on Thursday Competition Commission of Pakistan (CCP) claimed that the study recommendation will ease the government from ever mounting balance of payment deficit.
Stated in a press release that the study proposed recommendations will not only lead to a more competitive, well-functioning, and efficient LNG market resulting in a better price paid by the end consumer but also relieve the federal government from the ever-mounting balance of payment deficit.
CCP said that the study, ‘Competition Assessment of the LNG sector in Pakistan’ is completed under its mandate to carry out market studies to assess competition vulnerabilities and to promote competition in all spheres of commercial economic activity.
The competition assessment of the LNG sector shows various barriers to competition at all levels of the LNG value chain: In the upstream market due to the LNG contract price negotiated and the pricing model adopted by PSO and PLL. In the midstream due to the regasification at the Engro Elengy Terminal Limited (EETL) and Pakistan Gasport Consortium Limited (PGPC) terminal at the high tolling tariff of $ 0.479/mmbtu and $ 0.4177/mmbtu respectively (approx. $250,000/per day), the Port Qasim charges of $600,000/per vessel, and the handling of RLNG by SSGC resulting in higher network losses of SSGC. In the downstream due to the difference in cost structure i.e natural gas versus RLNG price (ring-fenced pricing) resulting in higher cost of production for the end consumers of RLNG as against the natural gas. Hence pushing the end consumers of RLNG at a competitive disadvantage.
Additionally the competition assessment of the regulatory framework highlights the vagueness created around the classification of LNG and RLNG by the Federal Government according to which RLNG is included in the list of petroleum products whereas the status of LNG is unclear, resulting in the non-exemption of LNG from Sindh Infrastructure Cess (SIC) as against its exemption on petroleum products resulting in higher price of RLNG.
The study proposes recommendations which will not only lead to a more competitive, well-functioning, and efficient LNG market resulting in a better price paid by the end consumer but also relieve the federal government from the ever-mounting balance of payment deficit.
Based on the international best practices in the sector it is recommended to improve the pricing models adopted in the Sale Purchase Agreements (SPA) through alternate pricing arrangements- the S-Curve Model, introduction of the price ceiling and floor in the contract price which will safeguard the interest of both the seller and the procurer of LNG.
Introducing spot market and natural gas hubs in the pricing model, and to renegotiate contract price review period as in both the long-term Sale Purchase Agreement (SPA) the price review is after 10 years. This will result in a more competitive and affordable price of LNG secured in the upstream LNG market.
In the midstream LNG/RLNG market, competitive tolling tariff and port charges will result in a lower price of RLNG. The study also urges the gas transmission and distribution companies, SSGCL and SNGPL for improvement in their network for efficient RLNG handling. In the wake of depleting indigenous gas resources and the continuously rising energy import bill, the study also recommends greater focus of the government on renewable energy resources to meet the growing energy demand and energy sustainability. CCP has uploaded draft study on its website, www.cc.gov.pk for stakeholders and the general public comments in next 30 days.
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