Ex-member OGRA opposes guaranteed return

Argues Sui gas companies should switch over to fixed margins

ISLAMABAD:

Oil and Gas Regulatory Authority’s (Ogra) former member gas Muhammad Arif has urged the government to do away with the guaranteed rate of return for Sui companies and allow them fixed margins in line with the model put in place for oil marketing companies (OMCs).

At present, the two Sui companies are running on a “cost-plus” formula, which guarantees return on assets, depreciation on assets including land assets, and all costs that could be imaginarily estimated. This formula had been given by lending agencies over 30 years ago when loans were granted for gas infrastructure development.

As all those loans have long been paid off, there is no justification for keeping the gas companies on a guaranteed return-on-asset formula, which is against the purpose and mandate of Ogra. OMCs operate on a limited per-litre margin, execute all development projects and pay salaries and other operating costs out of a fixed margin. “Why cannot gas companies be switched to a fixed margin based on the total British thermal units they sell,” the ex-member Ogra questioned while talking to The Express Tribune.

He hit back at the government and the regulator, saying that the planned re-prioritisation of the limited gas supply was tantamount to landing into more and deeper trouble.

After amendments to the Ogra ordinance in March 2022, not only the weighted average cost of imported and local gas (Wacog) can be recovered, but also the regulator has been empowered to notify consumer gas prices immediately after 40 days from its determination of the annual revenue requirement, in case the federal government does not provide any specific policy guidelines.

“Unfortunately, Ogra has deliberately failed to exercise such authority and contravened its own ordinance,” Arif said.

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This year, the revised gas prices effective from November 1, 2023 have created more confusion, complexity, illusion, illegality and loopholes such as arbitrary readjustment and increasing pricing slabs, which “are all much beyond Ogra’s average prescribed price”.

He said that the gas price notification did not reflect any respect for individual rights as the pricing was completely arbitrary and tantamount to over-collection of revenue than that required through cross-subsidisation.

“Nobody at the Petroleum Division or Ogra has developed a specific category-wise gas revenue calculation model and they have blindly trusted gas companies,” he said, adding that it did not contain any built-in provision for efficiency improvement and notification of consumer gas prices different from what had been determined by the regulator, which was against the provisions of Ogra ordinance.

The ex-member was of the view that the manoeuvrability given to Sui companies to adjust the blend of imported and local gas was illegal, ultra vires and void ab initio for being in contravention of the provisions of the Ogra Ordinance.

The creation of two different sets of domestic consumers ie, protected and non-protected, and the automatic switching of protected consumers to the non-protected category and charging a price even more than the average gas price, plus completely unjustified fixed charges of Rs2,000 per month, spoke volumes about the wrongdoings in gas pricing, he added.

Regarding fertiliser sector, Arif said, it was quite disappointing that different fertiliser plants were provided gas at different rates as there was absolutely no justification to give any concession or subsidy to the fertiliser sector as long as they were charging equal to or more than the import parity price of fertiliser.

Published in The Express Tribune, November 22^nd, 2023.

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