Provinces Refuse to Share Subsidised LNG Costs, Rs17 Billion Burden Shifted to Domestic Consumers


The caretaker government has decided to burden domestic consumers with Rs17 billion in costs as provinces decline to bear the expense of subsidised liquefied natural gas (LNG) supplied to two fertiliser plants. Provinces are insisting on full recovery of LNG costs from farmers, leading to this decision.

The Petroleum Division estimates that continuing the supply of re-gasified LNG at Rs1,239 per million British thermal units (mmbtu) from January to March 2024 will result in a financial implication of Rs17 billion due to the tariff differential with the notified RLNG price, set at $13 per mmbtu.

Following the Economic Coordination Committee’s (ECC) decision on November 23, 2023, the Oil and Gas Regulatory Authority (Ogra) was informed that the recovery of RLNG volumes diverted to the domestic sector could be allowed as per existing guidelines. However, these guidelines may need to be reviewed for the recovery of RLNG differential due to supply at Rs1,239 per mmbtu.

A proposal was made in a recent ECC meeting by the Petroleum Division to continue supplying RLNG to Fatima Fertiliser and Agritech Ltd at Rs1,239 per mmbtu from January to March 2024. The ECC approved this proposal, with the Rs17 billion differential to be recovered from domestic consumers.

Despite efforts to finalize a mechanism for provincial contribution, none of the provinces agreed to share the cost differential. They insisted on full-cost RLNG supply to urea plants, with the fertilizer produced sold at a price covering the entire cost.

Previously, the federal government had subsidized around Rs20 billion on RLNG supply to fertiliser plants, with expectations that provinces would contribute given the provincial jurisdiction over agriculture. However, provinces have resisted this, resulting in the burden being shifted to domestic consumers.

Story by Zafar Bhutta

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