Ministry finalises plan to collect Rs 101 billion from gas consumers?

Ministry finalises plan to collect Rs 101 billion from gas consumers?

Ministry of Petroleum and Natural Resources (MoP&NR) is said to have finalised a plan to collect Rs 101 billion from gas consumers for LNG and indigenous supply pipelines despite Ogra’s opposition, well informed sources told Business Recorder.

Giving the details, sources said Economic Co-ordination Committee (ECC) while considering a summary of September 2, 2015 submitted by Ministry of Petroleum & Natural Resources approved bank borrowing to the extent of Rs 101 billion in favour of M/s SNGPL & SSGCL enabling them to carry out augmentation of pipelines for phase-II of the project. It was also decided that Ministry of Finance will provide GoP guarantee in favour of these gas utility companies to arrange financing against phase-II projects from commercial banks. The ECC decision was accordingly conveyed to Ministry of Finance, M/s SSGCL, M/s SNGPL and Ogra for implementation.

Consequently, Ministry of Finance initiated its facilitation process for securing requisite bank financing in favour of the gas utility companies to achieve tight timelines for completion of the project. Meanwhile, Oil & Gas Regulatory Authority (OGRA) in a letter written on October 14, 2015 pointed out that Authority in its determination of Estimated Revenue Requirement (ERR) (or FY 2013-14) categorically conveyed its stance to gas utilities that financing of all mega gas pipeline projects should be through GIDC to avoid double impact on consumers as the same consumers are paying GIDC and return on assets. Further, the Authority in its decision stated that financing of such projects from GIDC will not be added to rate base for return purpose which in fact invites double treatment at the cost of consumers. Therefore, OGRA argued that this financial burden may not be passed onto the consumers / general public and all such projects should be financed through GIDC as the latter has been established exclusively for such purposes.

According to sources, recently M/s SSGCL vide its letter on January 08, 2016 has intimated that Ogra during the determination of Estimated Revenue Requirements (ERR) 2015-16 has disallowed return on assets on the infrastructure required to carry RLNG in its decision of December 18, 2015 on the grounds that these assets need to be created from the funding already generated from the consumers as a cess under the GIDC Act. SSGC maintains that the company is making a substantial investment of Rs 60 billion in RLNG project of national importance against which return is not guaranteed while on the other hand the company is incurring huge financial costs to finance these investments out of their own resources.

M/s SSGCL has emphasised that financial arrangements are a pre-requisite to complete RLNG project of national importance in the absence of which the company could not be able to proceed further. M/s SNGPL has also intimated similar concerns in the matter. This will result in delay of the project. Ministry of Petroleum & Natural Resources while conveying its viewpoint requested OGRA that financing cost being incurred in creation of infrastructure related to transportation of LNG/RLNG is required to be allowed as admissible expense in the revenue requirements of the gas utility companies.

MoP&NR argues that the decision to borrow commercially to provide funding to gas companies for system augmentation projects has already been taken at the level of the ECC which had prior consent of Finance Division. The Ministry further stated that there is a resolve of the government to ring fence the RLNG prices and all directly attributable costs are to be charged/recovered from RLNG consumers and therefore the same would not have any impact on the consumers relying on domestically produced gas.

The ministry has requested the ECC that OGRA be advised that subject projects be included in the asset base of gas companies subject to the condition that RLNG pricing will be ring fenced and all directly/ attributable costs will be charged/recovered from RLNG consumers without affecting the consumers relying on domestically produced gas. Financial costs incurred in creation of RLNG infrastructure of national importance should be allowed as admissible expense in the revenue requirement of the utility companies.