The Port Qasim Authority (PQA) has discontinued the Channel Development Cess (CDC) it has been charging on LNG vessels.
PQA had collected $47.5 million CDC meant for widening the channel to berth the liquefied natural gas (LNG) vessels.
However, two state-run energy companies – Pakistan LNG Limited (PLL) and Pakistan State Oil (PSO) – had pointed out that LNG vessels were still facing problems in navigating despite PQA collected the cess. The two companies informed the Petroleum Division that the CDC was collected for the first 200 LNG carriers for channel widening and dredging.
The Petroleum Division had taken up the matter with the Cabinet Committee on Energy (CCoE) in January this year that PQA continues collecting CDC. However, it had not spent the funds on widening of the channel for LNG vessels that still faced problems.
The Petroleum Division had further informed that PQA was collecting 300% higher port charges on LNG vessels compared to regional ports. It had proposed to reduce the charges.
PQA had communicated to the Petroleum Division that it would continue charging the CDC until complete recovery of its investment cost. A total of $47.5 million in CDC has been collected to date for infrastructure development at Port Qasim. At present, LNG vessels’ passage in the channel adversely affects the movement of other ships. All traffic in the channel stops when an LNG vessel is moving.
Due to unavailability of night navigation, the charter cost is affected, which is ultimately reflected in the price of LNG.
Report on CDC waiver
Sources said that officials of the Oil and Gas Regulatory Authority (Ogra) submitted a report to the Cabinet Committee on Transport and Logistics (CCoTL) last month. In the report, Ogra officials informed that that the CDC being collected by the PQA had been discontinued since April 2021. The Ogra officials also presented a report on pricing components regarding weighted average RLNG price for Sui Northern Gas Pipelines (SNGPL) transmission during May 2021.
It was informed that these pricing components were in accordance with the policy guidelines issued by the federal government from time to time. It was further informed that the CDC being collected by the PQA had been discontinued since April 2021.
Accordingly, it was not being claimed by PSO in RLNG pricing since May 2021 and were passed on to the consumers. However, it was not clear in the case of PLL as it was not reflected as separate item in their detailed cost break-up. The chair directed Ogra to brief the committee in this regard.
Ogra also briefed the house on cost break-up of RLNG price components, which included 13 items. The contract price of RLNG is 82.21% of the total cost. The chair discussed, remaining costs, item-wise, of RLNG ie customs duty, port charges, infrastructure cess, excise duty, PSO/PLL margins, LSA Management Fee (SSGC/PLTL), terminal charges, retainage volume adjustments, T&D volume adjustments, cost of supply of SNGPL and Sui Southern Gas Company (SSGC). The forum observed that there should be an evaluation of existing pricing components with an objective to further reduce the price of RLNG in order to provide maximum relief to the end consumer.
During the ensuing discussion, the house discussed the benchmark principle for procurement of LNG through spot buying to get maximum benefit.
The SAPM on power and petroleum stated that it was very difficult to pre-empt the demand of LNG, which fluctuates heavily due to the seasonal and other reasons.
The CCoTL noted the report presented by Ogra and directed the Petroleum Division to examine and recommend, through a formal summary, a benchmark principle in respect of spot buying of LNG. The objective should be to ensure spot buying on maximum possible reduced price. To examine and recommend, rationale behind certain components of the LNG pricing regarding customs duty, excise duty, retainage volume adjustment, T&D volume adjustment and the cost of supply by SNGPL and SSGC.
It also directed to ensure factual position regarding passing on the impact of reduced price of LNG to the consumers by the PLL, not being reflected currently by PLL.
Published in The Express Tribune, July 4th, 2021.
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