There is no doubt about the benefits of the usage of LNG by diesel-based power plants, industry, fertilisers and the transport sector.

However, the handling of its import and supply-chain mechanism by the government, its various agencies and companies, has been far from professional.

The government deserves the credit for arranging a port terminal to transfer the imported LNG into the domestic natural gas system within the committed schedule, but it has so far failed to finalise its buyers, payment mechanism and the LNG purchase arrangement.

Various ministries and their subsidiaries were found wanting in putting in place supply-chain arrangements and legal agreements while the LNG terminal was being constructed for almost a year

Even the operating license to the terminal operator and the terminal completion certificate have yet to be issued by the Oil and Gas Regulatory Authority (Ogra) and the Port Qasim Authority respectively, despite the arrival of two LNG shipments through the floating storage and regasification unit (FSRU). And the LNG has subsequently been sold without any legal cover.

The ministries of finance, water and power, ports and shipping and petroleum and natural resources and their subsidiaries were found wanting in putting in place supply-chain arrangements and legal agreements while the LNG terminal was being constructed for almost a year. They started the consultations when the terminal was nearing completion.

They then started the process of finding quick-fix solutions to a very serious business, knowing well that previous attempts to import LNG had failed over the last 10 years owing to procedural weaknesses that resulted in at least $10bn in losses to the nation.

Meanwhile, the government has accepted a suggestion from Ogra’s executive director litigation that “instead of amending the Ogra Ordinance to bypass the requirement of a public hearing, LNG should be defined as a petroleum product so that its price could be set by Ogra under a formula”.

The ECC has approved Ogra’s request, amending the Petroleum Products (Petroleum Levy) Ordinance 1951 (PL ordinance) to declare regassified LNG (RLNG) as a petroleum product. Its price can now be fixed on a monthly basis, just like petrol and diesel.

Likewise, the Schedule II of the ordinance can also be amended to include Sui Northern and Sui Southern gas companies as oil companies.

Based on the same argument, natural gas could also be defined as a petroleum product and its consumer prices could also be set without a public hearing. This seems to be in contrast with international definitions and practices and existing laws in the country.

Section 7 of the PL ordinance empowers the federal government to make amendments and modifications in the schedules as it thinks fit. A petroleum product has been defined as any petroleum product specified in the first schedule.

Plain reading of the schedule says the law’s framers had restricted the powers of the government to add only petroleum products having nomenclature defined in the schedule. The government has not been empowered to declare any product as a petroleum product. It has to meet the requirements of the nomenclature as laid down in the schedule and the international market.

Petroleum products are primarily produced by refining crude oil and in some cases by processing natural gas. But none of the products produced by processing crude oil can be re-converted to crude oil by any known process.

Natural gas is primarily methane, and LNG is also mainly methane liquefied under pressure and at low temperatures. If Ogra can be asked to notify LNG prices in exercise of powers conferred by Section 6(2) (r) of the Ogra Ordinance 2002, then it can also be asked to notify consumer prices of natural gas by adding the words ‘natural gas’ in the schedule.

This will take care of all the problems that the SSGC and the SNGPL have been facing for the last three years in meeting the regulatory requirements of the Companies Ordinance and being able to pass on the cost of high un-accounted for gas to consumers. Nowhere in the world is LNG or natural gas called a petroleum product.

Meanwhile, the Pakistan State Oil is still without a licence to import or market LNG or RLNG. Being an oil marketing company, its first two imports would need to be separately given some legal cover by amending sections 22 and 23 of the Ogra law, which requires a company to have a license before transmitting, distributing or selling natural gas or operate any LNG facility.

It also seems that a new form of regulatory capture is being put in place when Ogra is without a quorum and its executive directors are willing to upgrade themselves as members.

Published in Dawn, Economic & Business, May 4th, 2015

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