Ministry, OGRA fail to agree on Uch field’s gas price

Published: August 12, 2017


ISLAMABAD: The Ministry of Petroleum and the Oil and Gas Regulatory Authority (Ogra) are locked in a row over the wellhead gas price of Uch field as the latter refuses to set and notify the price, say officials.

The ministry has approached the Economic Coordination Committee (ECC), requesting the body to direct Ogra to notify the Uch wellhead gas price.

OGRA to set up offices in K-P and Balochistan

Oil and Gas Development Company (OGDC) has been supplying gas from the Uch field to Uch-II power plant, located in Dera Murad Jamali, Balochistan and having 404-megawatt generation capacity, in a provisional arrangement since 2013.

The gas supply started after OGDC and the management of Uch-II power plant negotiated and agreed on a gas pricing formula based on 18% internal rate of return (IRR), which was set with the help of an independent third-party consultant. They executed the gas price agreement (GPA) on October 14, 2013.

Two weeks later, OGDC sent the agreement to Ogra for notifying the wellhead gas price. However, the oil and gas industry regulator turned down the request, saying it could notify only the gas price agreed with the government of Pakistan and the GPA was between OGDC and the Uch-II plant management.

In the absence of the wellhead gas price notification, the National Electric Power Regulatory Authority (Nepra) – the power sector regulator – had been unable to determine fuel tariff – an essential component of the energy price of Uch-II power plant. Apart from this, it is leading to lesser payments to OGDC for gas supply to the power plant.

According to officials, the long delay in the issuance of notification may cause legal and financial complications and trigger undue litigation and arbitration. So far, OGDC has been issuing provincial invoices for gas supply to the Uch-II plant.

OGRA continues to function without a quorum, raises legal challenges

In an effort to resolve the matter, the Ministry of Petroleum and Natural Resources has approached the ECC with the request that Ogra should be advised to meet its statutory obligation as envisaged in the Ogra Ordinance 2002 and the Natural Gas (Wellhead Price) Regulations 2009 and determine as well as notify the wellhead gas price for supply to the Uch-II plant.

Ogra should also take into account the pricing formula agreed between OGDC and Uch-II power company, the petroleum ministry said.

The Ministry of Finance and Planning Division have endorsed the proposal depending on legal opinion of the Law Division.

The Law Division said clause 6(2)(w) of the Ogra Ordinance 2002 imposed a duty on the authority to determine wellhead gas prices and Ogra’s reliance on Natural Gas (Wellhead Price) Regulations 2009 could not override provisions of the ordinance.

Thus, the GPA, as required by Ogra under the Natural Gas (Wellhead Price) Regulations 2009, was not maintainable.

Ogra, on the other hand, came up with the stance that it should be a price determining authority for Uch-II when the GPA was entered between the seller, the buyer and the government of Pakistan.

The existing GPA, it added, signed between the seller and the buyer did not fulfill the mandatory requirement in Section 6(2)(w) of the Ogra Ordinance 2002.

Published in The Express Tribune, August 12th, 2017.

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