ISLAMABAD: If the gas shortage were not bad enough, the ineptness of those running the sector simply compounds an already critical situation.
Gas consumers are reported to have suffered a whopping Rs70 billion loss over three years thanks to a single decision of the Oil and Gas Regulatory Authority (Ogra) to hike the prices in a violation of then rules. And worse still, this ‘wrong’ decision to increase prices was leaked in advance allowing powerful brokers to pick up extra stocks of gas companies from the market and make a killing.
No wonder then that the initial information about this scandal, thanks to an inquiry conducted under the orders of the Supreme Court, has galvanised the National Accountability Bureau (NAB) into action. The bureau has sought permission to start formal criminal investigations with the aim to fix responsibility for the ‘improper’ decision.
The story, according to the documentary evidence available with Dawn, starts back in Sept 2010. Then Ogra made a substantial departure from its own previous decisions and targets, and set losses at seven per cent for 2009-10. In the past, it estimated unaccounted for gas (UFG) losses at 4.5-5.5 per cent.
As a result, there was a 13 per cent increase in gas tariff for that year, followed by another 15 per cent increase in August last year and about 14 per cent with effect from Jan 1, 2011, putting the total estimated loss at over Rs70 billion.
This burdened the gas consumers with Rs37 billion ( Rs20 billion on account of Sui Southern Gas Company and Rs16.6 billion for Sui Northern Gas Company Limited).
On the other hand, the shareholders of the two companies reaped windfall profits. But this is not the end of this story of wrongdoing and exploitation of the consumer. The latter were also robbed of their subsidies which were rerouted to the companies instead.
Informed sources said the Sept 2010 decision to increase UFG to seven per cent and to treat revenues from operating assets as non-operating income was shared by Ogra leaders with powerful stock exchange brokers sitting on the board of directors of the gas companies. Consequently, the SSGCL share being traded at the stock exchange for Rs16 on Sept 23 jumped to Rs36 in a matter of days.
Officials said this decision violated the World Bank and Asian Development Bank loan conditions. These conditions specified that required late payment surcharge, meter manufacturing profit, income from Jamshoro Joint Venture and sale of condensed gas was to be treated as operating income which was to be transferred to the consumer through a subsidy on bills.
As the stock players earned over Rs10 billion, the then Ogra chairman tried to reverse the decision after an onslaught of public criticism.
He tried to reverse the decision in Dec 2010 by reducing the UFG benchmark to five per cent and treating late payment surcharge, revenues from metering plant and Jamshoro Joint Venture as operating income in Dec 2010. However, this was vetoed by Ogra’s member gas.
Under the agreement signed by the gas companies and Ogra, the UFG losses were required to be gradually reduced to 5.5 per cent in 2009-10 from their actual losses of about seven per cent. The agreement required that the gas companies would bear the burden of loss beyond the agreed benchmark and earn as profit if they surpassed the target.
As it turned out, the gas companies UFG losses touched eight per cent in case of SSGCL and 9.63 per cent in case of SNGPL. These losses are now in excess of 9.5 per cent and 11.2 per cent respectively, causing over Rs350 billion losses to the national exchequer on account of alternate fuel imports.
The UFG benchmark was increased by the Ogra on the plea that in the absence of a study on UFG and change of ground realities in terms of security situation and expansion of gas network from bulk consumers to retail sale as a result of village gasification. A perusal of the public record, however, suggests that Ogra in its 2005-06 determination had reported in detail the findings of the UFG study.
The Ogra had reported in its 2005-6 judgment that UFG in nine gas companies in the US stood at less than one per cent, 12 companies up to two per cent and another nine companies up to four per cent. These companies had consumers in excess of 500,000 and up to four million. It said the UFG level for similar integrated companies in Australia ranged between 1.9 per cent and three per cent, while such losses in the UK were estimated at 0.7 per cent.
As such, the four per cent target for UFG to be achieved in 2011-12 “is reasonable and provides more than sufficient allowance to cater for peculiar local operating conditions, including socio-economic patterns, higher pressure requirements and related factors”, Ogra said, adding that the argument for aging network was also not sustainable for the fact that it has been allowing expenditure on system augmentation and maintenance of gas pipelines.
The NAB in its inquiry report submitted to the apex court said “unless the decision is reversed Rs7-8 billion will continue to be added on a yearly basis for indefinite period of time” and recommended “conversion of the inquiry into investigation” to scrutinise the record for further deliberations.
Under formal investigations, the NAB gets the powers to take record into custody and make arrests of alleged persons.
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