ISLAMABAD: In a surprise development, the Ministry of Petroleum and Natural Resources on Wednesday ordered the oil and gas companies involved in liquefied natural gas (LNG) to treat domestic natural gas being supplied to PakArab Fertiliser Limited as regasified LNG.

Informed sources in the petroleum ministry said the orders were issued to the Sui Northern Gas Pipelines Limited (SNGPL), Sui Southern Gas Company Limited (SSGC) and Pakistan State Oil (PSO) in anticipation of prime minister’s approval for amendments in the Ogra’s Third Party Access rules. It had been pointed out in media reports that recent LNG injections into the system and its distribution by PSO were not covered under the prevailing laws and regulations.

“The natural gas being supplied to PakArab Fertiliser Ltd from the system may be treated as supply against RLNG imported by them as equivalent volume of the same is being swapped by SSGC with SNGPL,” said a notification issued by the petroleum ministry and seen by Dawn.

Officials within the ministry pointed out that such an order without approval of the competent authority no less than the prime minister of Pakistan or the federal cabinet or the Council of Common Interests (CCI) would raise many legal questions.

The notification also reported that a summary seeking relaxation of Ogra Natural Gas Third Party Access Rules 2012 was under submission to the prime minister for approval and the matter was being pursued for its clearance as soon as possible.

The sources said neither PakArab nor PSO had the supplier or distributor licence for LNG. In fact, the Ogra had not yet approved access arrangement, capacity allocation, LNG price, transportation tariff or profit margins for any of the entities involved in the supply chain.

Before completion of all these legal requirements, the ministry’s order could not stand the test of judicial scrutiny, they added.

A law ministry official explained that marketing or distributing LNG required a licence and the Ogra has exclusive powers to grant such a licence under sections 22 and 23(2)d of the Ogra Ordinance 2002 later approved by parliament.

Moreover, it was an offence to undertake regulated activity without a licence under section 25(1)(a) and 25(d) of the ordinance, while section 25(2) prescribed punishments for any person who aids and abets in the commission of any offence.

In legal lexicon, the top brass of PSO is guilty of offence of carrying out regulated activity without a licence and the petroleum ministry, SNGPL and SSGC were responsible for abetting.

Officials said that anticipating the emerging LNG business, the SNGPL was trying to cover its system losses through LNG by charging exaggerated capacity charges and return on assets from LNG users.

They said the exclusive gas distribution rights of the gas companies had expired many years ago but the private firms were not being allowed to have distribution network. The SNGPL has so far been reluctant to supply RLNG to transport sector quoting theft in the CNG sector but its system losses — unaccounted for gas (UFG) — had not come down from 11.63 per cent despite closure of CNG stations for almost six months now.

These sources said the SNGPL was allowed 17pc guaranteed return on assets approved by Ogra at about Rs40 billion. Most of these assets have completed their depreciation cost and provide full cost plus 17.5pc return over the last 10 years but it was now trying to revaluate its assets at Rs198bn to charge return on inflated assets.

PSO and CNG sector, according to the sources, had signed agreement (term sheet) last week in violation of existing laws that envisaged the RLNG price in Karachi at $10.78 per unit excluding margins and charges to SSGC and SNGPL and all other taxes including GST.

The agreement had already lost its legal cover because the two gas companies did not sign it as required for different reasons, the sources added.

Published in Dawn, April 16th, 2015

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