‘Eid gift’: Court shoots down price review, CNG prices crash

CNG slashed by over Rs30 effective immediately; court told 2008 agreement to be scrapped.

ISLAMABAD:

Given only half-answers by the government, the Supreme Court (SC) took matters into its own hands on Thursday and declared “illegal” the existing formula of linking the review of CNG prices with oil prices.

The populist judgment had drastic effects – both immediate and longer term. Shortly after the announcement, the Oil and Gas Regulation Authority (Ogra) issued a notification reducing CNG prices by over a whopping Rs30 – a 33% slash.

Officials also told the court that an entirely new mechanism was being worked out with stakeholders, and the existing arrangement, in place since 2008, would be scrapped immediately.

The new arrangement would factor in other issues such as gas demand, etc.

According to the notification issued by Ogra, CNG will be sold in Region 1 (Potohar, Khyber-Pakhtunkhwa, and Balochistan) at Rs61.64 per kg (a Rs30.90 price reduction), while the price of CNG for Region 2 (Sindh, Punjab,and its areas excluding Potohar) would be Rs54.16 per kg (a Rs30.38 price reduction).

A two-judge bench, comprising Chief Justice Iftikhar Muhammad Chaudhry and Justice Jawwad S Khawaja, which had taken up a case about weekly pricing of fuel prices,  passed an interim order in the case on Thursday stating that since locally-produced CNG had no link to global oil prices, operating costs and profit rates on CNG prices were against the law.

During the proceedings, Ogra Chairman Saeed Ahmed Khan accepted the top court’s judgment, but appealed the court to give the regulator time to implement the price reduction from November, citing Eidul Azha holidays as a possible hindrance.

Chief Justice Chaudhry, however, turned down the request and, in lighter vein, asked the regulator to consider the price slashes an “Eid gift” for consumers. Furthermore, the court observed that CNG prices will not be revised on a weekly basis and said there would be no parity of CNG prices with other petroleum products.

Talking to The Express Tribune after the court hearing, the Ogra chairman said, “I am happy with this decision of the court that rightly pointed out anomalies in the present pricing mechanism, but my single voice was never heard by anyone at the helm of affairs.”

Wider affect

Petroleum and Natural Resources Secretary Waqar Masood, who attended the hearing on Thursday, told the court that the weekly pricing mechanism for petroleum products had been suspended until the Economic Coordination Committee (ECC) of the cabinet gives its decision, adding that prices would be revised after six months.

As per the petroleum secretary’s written statement submitted to the court, the Ministry of Petroleum and Natural Resources will expend additional efforts to ensure that domestic and life-line consumers’ interests in the matters of gas pricing are fully protected, the arrangement evolved for linking the price of CNG with the price of petrol on weekly basis will be abandoned, and that the cost of gas for CNG will be adjusted only after the determination of the prescribed price by Ogra as per law.

Furthermore, the MoU through which government and CNG associations had agreed on a formula for operating cost of CNG stations will be immediately suspended and Ogra will develop a new formula after seeking full information about the availability of gas, linkages with alternate fuel, discussions with all stakeholders and after scrutiny of audited accounts of CNG stations as per rules, the secretary added.

Masood was questioned about gas development surcharges. According to report submitted by the Ogra chairman on the details of petrol and CNG pricing, the government’s procurement cost of CNG in Region 1 was Rs 19 per kg whereas the per kg price of CNG in Region 2 was Rs 17.57.

Justice Jawwad S Khawaja observed that, as per his view, the consumers were paying around Rs50 per kg of CNG prices.

“We can also examine the government’s taxes on CNG prices, if someone challenges it under the Constitution,” said Justice Jawwad S Khawaja.

However, the chief justice said the bench would not comment on government taxes as it was necessary to impose taxes to run the state, adding that the court would, however, not allow any illegal action.

The report presented by Ogra also stated that CNG station owners earned a per kg profit of Rs 11.91 and had a Rs20.80 per kg operating cost under the now suspended memorandum of understanding (MoU) inked between CNG associations and the government back in 2008.

In his remarks, Chief Justice Iftikhar said CNG prices could not be changed without adopting the procedure laid down in the ordinance, which binds Ogra to fix prices after a public hearing with the participation of stakeholders to meet revenue requirements sought by gas utilities.

Published in The Express Tribune, October 26^th, 2012.