SIFC Approves Deal for Resuming LPG Production
With Reopening of JJVL Plant, Local LPG Output Will Be Maximised
Introduction
In a significant move to enhance local energy production and reduce reliance on imports, the Special Investment Facilitation Council (SIFC) has approved a revised agreement between Sui Southern Gas Company (SSGC) and Jamshoro Joint Venture Limited (JJVL). This agreement aims to restart liquefied petroleum gas (LPG) production at JJVL, which has been inactive for some time. By resuming operations, the government seeks to bolster local LPG supplies, mitigate shortages, and relieve pressure on Pakistan’s foreign exchange reserves.
The Significance of Resuming JJVL Operations
Reducing Dependence on LPG Imports
The closure of the JJVL plant had forced Pakistan to rely heavily on imported LPG, increasing costs and depleting foreign exchange reserves. With the plant’s reopening, the country will be able to maximise local production and lessen import dependency.
Addressing LPG Shortages
Winter months in Pakistan witness a surge in LPG demand. The resumption of JJVL’s operations will ensure sufficient supply to meet domestic and industrial needs, preventing any potential shortages.
Enhancing Energy Security
Producing LPG domestically strengthens Pakistan’s energy security by reducing reliance on volatile international markets. The revised agreement between SSGC and JJVL is a crucial step in achieving this objective.
The Revised Revenue-Sharing Agreement
Supreme Court’s Interim Arrangement
The Supreme Court had earlier approved a temporary revenue-sharing formula, allocating 57% to SSGC and 43% to JJVL. To determine a final arrangement, the court appointed AF Ferguson & Co., a public accounting and business advisory firm.
Proposed Revenue-Sharing Ratios
AF Ferguson proposed a revenue-sharing ratio of 57.54% in favor of SSGC. However, negotiations between SSGC and JJVL led to multiple proposals:
- SSGC’s Initial Proposal: 78:22
- JJVL’s Counterproposal: 64:36
- Working Group’s Compromise: 66:34 (with 25% LPG share for SSGC)
Final Decision on Revenue Sharing
The SIFC executive committee concurred with the working group’s proposed ratio of 66% for SSGC and 34% for JJVL. The committee emphasized that the JJVL plant should resume operations without further delay.
Implementation Plan and Key Directives
Deadline for SSGC Board Approval
SIFC has directed the SSGC board of directors to formally approve the deal by February 25, 2025. However, due to the petroleum secretary’s absence on an official visit to Azerbaijan, the board has yet to make a final decision.
Clearing Financial Dues and Legal Compliance
Before gas supply to JJVL resumes, all undisputed dues payable to SSGC by JJVL must be cleared. Additionally, an ongoing FIA inquiry should be concluded at the earliest to ensure a transparent process.
Monitoring and Future Adjustments
The revised revenue-sharing agreement allows for adjustments in case of:
- Price revisions by the Oil and Gas Regulatory Authority (Ogra)
- Changes in sales mix or consumer categories by the federal government
The Ministry of Energy – Petroleum Division will monitor compliance and oversee any necessary revisions.
Expected Benefits of the Agreement
Increased Domestic LPG Production
The revival of JJVL’s plant will significantly increase LPG production, reducing Pakistan’s dependency on imported gas.
Economic Benefits
Maximising local production will contribute to economic stability, as reduced imports will help preserve foreign exchange reserves.
Better Consumer Access to LPG
With increased production, LPG prices are likely to stabilise, benefiting households, businesses, and industries.
Frequently Asked Questions (FAQs)
1. Why was the JJVL plant closed?
The plant was shut down due to contractual disputes and regulatory challenges. Its reopening is aimed at maximising domestic LPG production and reducing reliance on imports.
2. What is the revenue-sharing ratio between SSGC and JJVL?
The approved revenue-sharing ratio is 66% for SSGC and 34% for JJVL, with 25% LPG share for SSGC based on the Ogra-notified producer price.
3. How will the reopening of JJVL benefit Pakistan?
It will increase domestic LPG production, reduce energy import costs, improve energy security, and ensure stable supply during high-demand periods.
4. What is the deadline for approving the revised deal?
The SSGC board must approve the agreement by February 25, 2025, as per the directives of the SIFC.
5. Can the revenue-sharing agreement be revised in the future?
Yes, the agreement allows for revisions in case of price changes by Ogra or modifications in the sales mix by the federal government.
Conclusion
The SIFC’s decision to resume LPG production at JJVL marks a crucial step in Pakistan’s energy sector. The revised revenue-sharing agreement aims to ensure fairness, economic sustainability, and energy security. With timely implementation, this move will benefit consumers, industries, and the national economy while reducing reliance on costly LPG imports.
