A meeting was held at the Ministry of Law on December 26. 2012 to deliberate and reevaluate the CNG price taking all stakeholders on board. The meeting was chaired by Mr Farooq Naik Federal Minister of Law, Oil and Gas Regulatory Authority (OGRA), Consumers Rights Commission of Pakistan ( CRCP), Chambers of Commerce, and a huge quorum of CNG associations accompanied by an entourage of lawyers and auditors. On behalf of the consumers CRCP representative stated the price determination approach should be based on the consumer’s propensity and willingness to pay which should serve as the starting point in the determination of the final price.
The three major components of the pricing formula namely; cost of compression, the inclusion of cost of operations over the already high prescribed profits and heavy taxation on CNG.
Cost of Compression:
In the cost of compression, the CNG association is charging both the price of electricity as well as the price of diesel. It has been extensively observed that during load shading the CNG stations throughout the country shut down their operations. If however any CNG station wants to operate during this time than this is a competitive decision made by the individual seller and consumer should not be charged for this. Therefore, CRCP believe that diesel price should be taken out of the CNG price.
Cost of Operations over the prescribed profit:
a. The use of preposterous high percentages, e.g. fixed marginal profit, 20% in the formula for defining CNG retail price is highly, which is not seen anywhere for a highly used commodity.
b. The cost of operation inclusion alone amounts to unorthodox huge profits for the CNG station owners. The retail price of the CNG gas is arrived at after including the complete cost of operations of the business including unearned incomes like rentals, manpower, bathroom maintenance, fees and subscriptions etc. This is the biggest flaw in this pricing mechanism as it is designed to transfer the running cost of the complete business operation to the consumers for every kg of CNG purchased. CRCP strongly objected to the inclusion of the cost of operation on every kg of CNG sold to the consumer.
c. CRCP requested the regulator OGRA that it should clearly announce the minimal standards of running an efficient business. In the absence of a well defined baseline, for running a good and efficient CNG station the prevalent price determination methodologically transfers the cost of inefficiencies of the business operation to the consumer. The CNG owner can run a completely inefficient business without a single penny lost from his pocket. This unusual methodology of pricing safeguards the CNG sellers and has curbed healthy market competition and sets the main ground for the CNG dealers’ association monopolistic control.
Government Taxation on CNG:
The pricing mechanism, published by OGRA, clearly indicates consumer being charged two taxes GST and The Gas infrastructure Development Cess (GIDC). 21% GST on the sum of Cost of Gas as well as GIDC, also a tax, add a heavy burden on the consumer.
As a general rule 16% GST is usually placed on commodities of public use. 21% GST charged to the end consumer is too high for an extensively used commodity like CNG having a huge per day consumption rate.
Further the consumers are concerned with the ground realities and progress of the projects for which GIDC is collected and demand transparency of the GIDC account.