ISLAMABAD: More than 70 per cent consumers of compressed natural gas (CNG), or about 2.5 million people, will have to sell their CNG kits to scrap dealers if the federal cabinet accepts a proposal by the petroleum ministry to ban use of gas in private vehicles.

The remaining users may also not view the gas as a cheap option due to a proposed 40 per cent increase in taxes as owners of CNG filling stations are ‘incentivised’ to switch over to liquefied petroleum gas (LPG) stations. About 3.5 million vehicles in the country are currently being run on CNG.

According to a summary prepared for the federal cabinet which is expected to meet on Wednesday, the ministry wants to give clear guidelines about the future of the CNG sector to the consumers.

An official said the Economic Coordination Committee of the cabinet would take up the issue on Tuesday.

“That is the way forward,” said Adviser to the Prime Minister on Petroleum Dr Asim Hussain when asked if his ministry was planning to deny CNG to all private vehicles. He said that CNG consumption

in private vehicles was increasing so dramatically that the situation had become unsustainable.

The adviser, however, declined to comment further, saying the matter was sub judice and he wanted the apex court to settle the issue.

When he was informed that the summary moved by his ministry was available with Dawn, Dr Hussain said he did not know of any progress on the issue because he was not in his office.

“For the purpose of spreading the benefits of the cheap and clean transport fuel to larger public, the use of CNG will be restricted to public transport as defined in the law,” said the summary. Rickshaws, taxis, wagons and buses were generally defined as public transport, an official said.

But that’s not all. The CNG price would be increased sufficiently so that it is only 20 per cent cheaper than petrol.

“In order to remove distortion in the price of CNG and other competing fuels while determining CNG prices, it will be ensured that price of CNG is not less than 80 per cent of petrol,” according to the summary. For the purpose of ensuring parity of 80 per cent, appropriate adjustment in gas infrastructure development cess will be made.

On top of that, the ongoing policy of ‘squeezing the CNG stations’ will be strengthened. This would be done by denying to CNG station owners the operating cost that has been worked out at Rs7.90 per kg by the Oil and Gas Regulatory Authority (Ogra).

The policy guidelines proposed by the ministry seek to align the pricing of CNG to that of distribution of other fuels like petrol and diesel where only two margins are allowed, one for oil marketing companies and dealers (petrol pumps) with the difference for value of addition (compression that takes place at the CNG stations). Ogra currently assumes Rs5.46 per kg as fair cost of compression.

According to the policy guidelines, the price of CNG will include the cost of gas sales to CNG stations, value-added cost for compression, margin as allowed on petrol and diesel to marketing companies and dealers, as approved by the government from time to time, cess and sales tax.

The value-added cost would be determined by Ogra through a public hearing process and forensic audit of CNG stations.

“In (due) course of time, all CNG stations will be incentivised to convert them selves to LPG,” the summary added. The current ban on import of CNG kits and cylinders will continue until further orders. Likewise, the ban on setting up of new CNG stations would continue, it added.

The petroleum ministry said the policy guidelines were finalised after Ogra came up with recommendations on CNG pricing in consultation with all stakeholders as directed by the Supreme Court.

It said the consumption of natural gas for CNG has “witnessed an explosive growth, particularly in the last 6-7 years”.

Unfortunately, much of this growth has happened at a time when the supply of gas has not witnessed any significant increase.

As a result, the growth is met by denying gas to other critical sectors of the economy, most notably power and fertiliser, as gas demand of CNG stood at 16 per cent (437 million cubic feet per day) of the pipeline system (2,796 mmcfd) which is a huge burden on the country’s limited energy resources.

The summary conceded that while this situation emerged, the government policy in this area had either been missing or made on an ad hoc basis.