Earlier, OGRA had been allowing gas companies SNGPL and SSGC to charge 11 to 17 percent UFG from LNG consumers, respectively
KARACHI: Sui Northern Gas Pipeline Limited (SNGPL) and Sui Southern Gas Company Ltd (SSGC) have challenged the regulator’s decision to cut LNG consumers’ losses.
The Oil and Gas Regulatory Authority (OGRA) had recently slashed the rate of UFG to 6.3 percent. The regulator took an unpopular decision while notifying the price of LNG for November 2020. Earlier, OGRA had been allowing gas companies SNGPL and SSGC to charge 11 to 17 percent UFG from LNG consumers, respectively.
SNGPL’s UFG stands at around 11 percent, whereas the UFG of Sui Southern Gas Company (UFG) is on the higher side at 18 percent.
SSGC had no regular managing director since 2016. This had deteriorated the performance of the company. Its losses had jumped up to around 18 percent. This means that the national exchequer was sustaining a loss of Rs 25 billion due to gas theft and leakages.
Now, there will be the start of a legal battle between Ogra and gas companies over a cut in UFG for LNG consumers. UFG represents gas theft and leakage in the distribution system of gas companies.
In a statement issued on Friday, spokesperson SNGPL highlighted that the recent RLNG price notification issued by OGRA is in contravention with Petroleum Levy Ordinance 1961 and against the Cabinet decision of actual allowance UFG for RLNG pricing.
It further said that OGRA had instead imposed a unilateral decision of a 6.3% benchmark in isolation for distribution consumers only.
He had also pointed out further that LNG had been declared a petroleum product in consultation with OGRA while it has been determining prices of RLNG for the last 5 years, following the specific formula approved as policy guideline by the Federal Government (The Cabinet).
‘OGRA remains obligated to follow the government policy parameters as per the Supreme Court decision which had clearly held that the Federal Government policy guidelines are binding on OGRA, SNGPL said.
Presently, natural gas consumers are subject to a consolidated benchmark of around 7% for both transmission and distribution consumers, and no separate benchmark exists for each category of consumers. Instead, for RLNG consumers, OGRA has now assumed separate benchmarks of 0.38% for Transmission and 6.3% for Distribution.
SSGC Notice to PSX website:
In a notification to Pakistan Stock Exchange (PSX) on Monday, the SSGC has also raised its concerns with OGRA to reconsider the pricing as per governing laws.
The pricing components of RLNG were approved by ECC vide its decision dated 14 June, 2016 whereby the costs (including UFG) as well as revenue of RLNG related gas have been ring-fenced. The said ECC decision inter alia allowed UFG losses to be determined and charged at actual to RLNG consumers. The pricing model adopted by the ECC was based on the principal that the companies should not be exposed to, or be worse off due to any adverse impact of RLNG handling, SSGC said.
OGRA implemented the decision of ECC dated 14 June 2016 referred above vide its decision Ref.OGRA-10-11(8)2015 dated 7 October 2016 wherein besides other components T&D losses at actual were also allowed. Since FY 2014-15 to FY 2016-17, OGRA implemented the ECC policy guidelines in true letter and spirit and allowed UFG at an actual. Further the same methodology for calculation of UFG has been adopted by the Authority, it added.
However, the permissible practices are being discontinued vide issuing the notification of provisional prices for the month of August to November 2020 on 11 November 2020. We believed that OGRA is in contravention with Petroleum Levy Ordinance 1961 and against the Cabinet decision of Allowance of actual UFG for RLNG pricing by imposing unilateral decision of 6.3% benchmark in isolation for distribution consumers only. OGRA remains obligated to follow the Government policy parameters as per the Supreme Court decision which had clearly held that the Federal Government policy guidelines are binding on OGRA:
“The language of Section 21 of the ordinance is very clear in that the FG can issue guidelines and there is no check on the power of the FG to that effect. It is also absolutely clear that OGRA in terms of such guidelines has to perform its functions, however the only condition is that the guidelines should not be inconsistent with the provision of OGPA”
SSGC official said presently, natural gas consumers are subject to consolidated benchmark of nearly 7% for both the transmission and distribution consumers and no separate benchmark exist for transmission and distribution consumers. Instead OGRA has now assumed separate benchmark of 0.l2% for Transmission and 6.3% for Distribution. OGRA, therefore, has effectively implemented UFG benchmark on RLNG in contravention of ECC/Cabinets decision, as against the legal position that under the Petroleum Levy Ordinance the mandate to determine allowable UFG in case of RLNG does not rest with OGRA unlike Natural Gas Pricing, which is done pursuant to OGRA Ordinance, he added.