April 17, 2008	Thursday	Rabi-us-Sani 10, 1429

KARACHI, April 16: The Sui Southern Gas Company’s request to the Oil and Gas Regulatory Authority (Ogra) for a tariff increase was strongly opposed by representatives of the industry, especially by the textile sector which boycotted Wednesday’s hearing in which some major stakeholders also did not turn up.

This position was taken by the major stakeholders when a public hearing was held by Ogra on a review petition of the SSGC, seeking an increase of Rs69.37 per MMBTU (million British Thermal Unit) in its projected prescribed price from July 1. The hearing was presided over by Ogra chairman Munir Ahmad.

Stakeholders such as the Karachi Electric Supply Corporation and Independent Power Producers did not turn up for the hearing.

The petitioner projected a shortfall in the revenue requirement for 2008-09 at Rs26,625 million, seeking an increase of Rs69.37 per MMBTU from July 1 in its average prescribed price. But in the footnote of one of the annexed statements of the petition the SSGC maintained that the upward adjustment of Rs69.37 per MMBTU for 2008-09 had been reworked to Rs90.05 per MMBUT with the consideration that the effect of the price increase should not pass on to domestic customers and feedstock of the fertilizer industry.

The main reason for the increase in the prescribed price, as explained by the petitioner, was the projected increase in the cost of gas, which the petitioner was required to pay to the gas producers. The cost of gas is linked to the international price of crude oil / fuel oil in accordance with agreements between the federal government and the gas producers.

The participants of Wednesday’s hearing strongly opposed the petition saying that Ogra had already allowed an increase in gas prices and any further increase in gas prices would have adverse economic and financial impact on gas consumers. An increase of even a fraction of the tariff would not be of major consequence to the gas company, but it would indeed be a net loss to the textile industry and would result in a significant loss in export earnings as textile comprised 75 per cent of the country’s exports.

They maintained that this would deprive the country of foreign exchange apart from increasing unemployment, creating law and order problem and general resentment.

They urged Ogra to dismiss the gas company’s petition due to its inefficiency, non-adherence to modern techniques to make the company a viable entity. The company must develop professional attitude and reduce its cost rather than ask for an increase in the revenue requirement, they said, adding that Ogra should revise the tariff downward, at least for the industrial sector.

The counsel for the All Pakistan Textiles Mills Association refused to make any submissions and informed the chair that his client had stopped him from doing so because of the “helplessness” of the authority in providing relief and acting independent of the government policy. He submitted that it was high time the authority came out of the influence of the federal government and acted independently. He also cited Sec 3 and Sec 21 of the Ogra ordinance in support of his contentions claiming that Ogra was a statutory body and must not tie itself to the government policy.

He pleaded that such an exorbitant rate of increase being sought by the petitioner would not only ruin the industry in the country and also have a devastating effect on the daily life of ordinary consumers, who would not be able to bear such heavy costs. Such an increase would create a vicious circle by increasing the prices of all the other items in the country at the similar pace.

The representative further drew the attention of the authority to the provisions of the Ogra Ordinance which made Ogra responsible for protecting the interest of all the stakeholders, and requested that while deciding on the determination of the revenue requirement the interest of the industry be kept in view. He also said that the government must consider removing the cross-subsidy to solve the problems connected with price distortions.

The representatives of the industry further stated that the wellhead gas price mechanism be immediately changed, as it was a higher component in price determination. Some of them suggested that natural gas being indigenous fuel be not linked to international prices of crude oil. Line losses and operating cost of the company be improved. His contentions were noted by the chairman of Ogra, who said that written submissions would be taken into account.

SITE Chairman Mohammad Nisar Shaikhani while criticizing the SSGC’s plea said the cost of doing business in Pakistan was on the rise and accepting such a demand would be the last nail in the coffin of the industry.

He said that 67 per cent of export earning was through the textile sector and if the SSGC’s plea was accepted then it would create a serious gap and may cause the flight of capital.

He said that already many industries had been scrapped and the premises had been converted into warehouses. He also pointed out that the government must consider removing the cross-subsidy to solve the problems of price distortions. He said that nowhere in the world one industry was subsidized at the cost of another. He said that such a decision amid rising cost of fuel would make Pakistan’s industry even less competitive and the situation had generated deep frustration and despondency in the industrial sector.

Arif Balwani maintained that the federal government should share some of the burden of the increase in gas price by parting with some of its fortunes that it collected at various stages of gas production to distribution.

He said the agreement to supply gas at highly and unreasonably subsidized rates to all the existing fertilizer manufacturing units had long expired, but they were still being supplied gas at the cost of other industrial consumers.

In his submissions, he suggested that like different tariff slabs for domestic consumers, different slabs should also be introduced for commercial consumers. Commercial consumers with high consumption of gas be charged at least more or equal to the 5th slab of the domestic category. He also pleaded that rates for CNG stations be increased at least to the level of 5th slab of the domestic consumers.

All extra expenditures and losses incurred by the company due to the policies of the GOP, that is the loss incurred on repair and replacement due to blowing up of pipelines, loss of gas, extra expenditure incurred on security and surveillance, extra expenditure incurred on insurance, be borne by the government.

In all fairness, shareholders of the company be given a reasonable return on their investment. Since the covenant of 17 per cent return on average net assets employed had expired a long time ago, provisionally it should be replaced by 17 per cent guaranteed dividend to shareholders until the new policy was framed.

Representatives of minority shareholders were concerned at the decline witnessed in the financial results of SSGC and urged Ogra to take necessary steps to arrest this decline. They maintained that Section 21.1 of the licence had not been implemented in letter and spirit by Ogra as various requests of SSGC relating to UFG revision were turned down without justified reasons.

Winding up the public hearing, the Ogra chairman said that it was the duty of the authority to take into account the divergent interests of the utility companies and consumers. The authority would scrutinize all costs with the help of a team of professional engineers, financial and legal experts. He said that Ogra had provided an opportunity to all the stakeholders in the hearing and thanked them for their whole-hearted participation in the proceedings. He said that their tangible suggestions would help the authority in its analysis.

Ogra’s decision on the review petition is expected in mid-May.