Amended WACOG Bill to help rationalise gas pricing structure

KARACHI: The upper house of the parliament on Thursday passed amended Weighted Average Cost of Gas (WACOG) Bill that envisages pooling imported and locally produced gas together to determine a stable price for consumers at large.

Historic reform

After National Assembly, Senate of Pakistan passed Oil & Gas Regulatory Authority (amendment) bill, which was hailed by Federal Minister Energy Hammad Azhar as a “historic reform” that would ensure Pakistan’s energy security. “WACOG bill has been passed today by Senate as well. It is a historic and long-pending reform that will ensure the energy security of Pakistan,” said Azhar in a tweet.

Improved pricing structure

He stated that the bill would allow the government to embark upon the reform of the “gas pricing structure, remove anomalies and enhance supplies of imported gas” and added that reform is as significant as the approval of the Indicative Generation Capacity Expansion Plan (IGCEP) model for power purchase.

One regulatory framework

According to an official statement, the amendment is aimed at bringing entire Regasified Liquefied Natural Gas (RLNG) licensing and pricing under a regulatory framework.

This would empower OGRA to determine and notify RLNG sale price under OGRA Ordinance 2002, it said.

Price stability

Samiullah Tariq, Head of Research at Pak-Kuwait Investment Company said the well-head price of domestic gas was determined twice in a year through public hearing, whiles price of RLNG each month, keeping international market rates in view.

He said that after the passage of the bill, both would be pooled to determine the weighted average price for domestic and industrial consumers.

End to public hearings

Under the amended law, the authority may decide the price without giving any notice to the public and without holding public hearing, if the prescribed price is required to be revised on account of revision in well-head gas prices and cost of imported gas.

“This means after being pooled there will be no public hearing for determining the price of gas for consumers if there is a fluctuation in the price of imported gas,” Tariq explained.

No allocation restrictions

He said after the passage of the bill there would not be any restriction with regard to allocation of imported gas to any particular sector and it would be available to all domestic and industrial consumers.

Through another OGRA amended bill passed by the Senate, each licensee of natural gas shall pay to the federal government the development surcharge in respect of each unit of natural gas sold in a manner as prescribed by the federal government under the Natural Gas (Development Surcharge) Ordinance 1967.

The Natural Gas (Development Surcharge) Ordinance, 1967 was promulgated to provide for levy and collection of a development surcharge on natural gas and for the matters connected therewith.

The Gas Development Surcharge (GDS) is essentially a differential margin of sale price and prescribed price of the natural gas meaning thereby this differential margin will emerge when sale price exceeds the prescribed price.

Negative GDS

In the absence of adequate raise in consumer gas sale prices, the differential margin between sale prices and the prescribed prices is resulting in negative GDS and this amended bill would eliminate gaps between regular, semi-tariff determination, and notification, analysts said.