Chaired by the then prime minister Shahid Khaqan Abbasi, the decision was taken by the cabinet’s Economic Coordination Committee (ECC) of the cabinet on May 30.
In the same meeting, the ECC also increased profit margins on the sale of petroleum products.
The Petroleum Division recalled that the ECC in its earlier meeting in April 2018 had directed the division to examine a proposal for the increase in LNG margins in consultation with the finance division and a justified hike for Pakistan State Oil (PSO) and Pakistan LNG Limited (PLL) may be incorporated in the Finance Bill.
Accordingly, a meeting was held on May 10 between representatives of the Finance Division, Federal Board of Revenue (FBR), Oil and Gas Regulatory Authority (Ogra) and Petroleum Division where the issue was discussed and different options were reviewed, reported a national daily.
After taking into consideration the impact of an increase in margins on end-consumers, it was decided that a hike of 1.25 percentage point from 2.5% to 3.75% may be the most appropriate.
The Petroleum Division informed the ECC that according to Ogra’s circular of May 4, 2018, the final LNG sale price for Sui Northern Gas Pipelines Limited (SNGPL) on its transmission network was $10.61 per million British thermal units (MMBtu) for May 2018.
The increase in LNG margins from 2.5% to 3.75% would take the LNG price from $10.61 to $10.72 per MMBtu with an increase of $0.11, it said.
The Petroleum Division proposed an increase of 1.25 percentage point in margins to mitigate the higher incidence of tax on LNG. After detailed discussions, the ECC approved the hike that would be passed on to the consumers of imported gas.
PSO and Pakistan LNG Limited import around 1 billion cubic feet of LNG per day and any rise in margins will push up gas prices. Power, textile, other industries and compressed natural gas (CNG) filling stations are major consumers of the imported gas.
The Ministry of Energy (Petroleum Division) had sought higher margins on LNG imports after the FBR refused to withdraw 1% withholding tax.
In an ECC meeting in April, the Petroleum Division revealed that the 1% withholding tax was levied on the value of LNG cargoes at the import stage, which the FBR treated as non-refundable.