ISLAMABAD: The Oil and Gas Regulatory Authority (Ogra) has warned the government that it would be legally bound to notify an across-the-board increase of 12 per cent in the natural gas tariff for all consumers on Nov 15.

In a letter to the ministry of petroleum and natural resources, the regulator told the government that it had forwarded the prescribed price for the two gas utilities — Sui Northern (SNGPL) and Sui Southern (SSGCL) — on Oct 6, on the basis of their revenue requirements for the current fiscal year.

The letter reminds the government that under section 8(3) of the Ogra Ordinance, it was bound to set minimum charges and the sale price for each category of retail consumer within 40 days of the determination.

Section 8(4) of the law makes it binding on Ogra to “notify in the official Gazette the prescribed price as determined by the authority...to be the sale price for the said category of retail consumers for natural gas” if the federal government fails to notify the same within those 40 days.

However, in a case before the Islamabad High Court, the ministry has adopted the stance that it is the purview of the regulator to notify the gas tariff 40 days after it determined the prescribed price. If the regulator had not increased the consumer tariff in the past, then Ogra was responsible for the lapse. Separately, Petroleum Minister Shahid Khaqan Abbasi said last week the government would not increase the gas prices.

This position has put Ogra in a bind. In its letter, a copy of which was also sent to the Cabinet Division, the regulator told the government that it would be left with no other option but to notify the prescribed price as the consumer tariff with effect from Nov 16 unless it was given written advice on how to proceed.

A senior Ogra official confirmed it had issued a reminder to the government, but said the government still had two days to take a decision. “If the government doesn’t want to increase prices, it needs to convey its decision in writing and Ogra would maintain the status quo,” the official said, adding that if the government did not, “we don’t have any option, more so with [the] petroleum ministry’s position before the high court”.

The official said that Ogra had determined a 12pc average price increase to meet the revenue requirements of the gas utilities. However, if the government wanted to protect domestic consumers and farmers through fertiliser prices, an increase of 36pc would need to be passed on to industrial, commercial and power sector consumers to cross-subsidise domestic consumers and fertiliser plants.

At the heart of the political question is an amount of about Rs60 billion, including Rs44bn carried forward due to the indecisiveness on part the government and Ogra. Under the law, if the tariff is not increased, an amount of Rs60bn of provincial revenue could be eroded and cause an equivalent loss to gas companies.

It is believed that the PML-N government is in a win-win position in terms of popular politics in case the status quo prevails over gas price. A majority of gas consumers are in Punjab, even though it produces the least natural gas. No change in gas prices benefits the PML-N politically, although consumers across the country would also be relieved.

On the other hand, status quo means the erosion of provincial revenue worth around Rs60bn, but this still won’t affect Punjab much. The biggest loser in that case is Sindh, with an almost 70pc share in gas production, followed by the 17pc and 13pc shares of Balochistan and Khyber Pakhtunkhwa.

The matter is of an inter-provincial nature and hence could be tackled by the Council of Common Interests (CCI), unless the federal government compensates the provincial governments through budgetary transfers.

On Oct 6, the regulator almost accepted the 12pc or Rs57.89 per million British Thermal Units (MMBTU) increase in average prices demanded by the SNGPL to fix its average prescribed price at Rs480.63 per MMBTU, up from the existing rate of Rs422.74 per MMBTU, to meet its estimated revenue requirements for FY2016-17. This cost of gas is also applicable to SSGCL under the existing laws.

Published in Dawn, November 14th, 2016