ISLAMABAD: With the LNG business being run on an ad hoc basis, the Oil and Gas Regulatory Authority urged the government to put in place a comprehensive legal framework to regulate the entire system, from supply to pricing.

Ogra says it is of the opinion that eventually entire LNG/RLNG supply chain is required to be governed by a proper regulatory framework under one legislation which may be called ‘Ogra Ordinance’.

The current system of spot LNG purchases, sale to consumers, invoicing and fixing the prices of end products has no legal standing, according to the official document seen by Dawn.

The document does not support the government’s previous decision of setting RLNG (regasified liquefied natural gas) prices in line with other petroleum products on a monthly basis through an amendment in the schedule of Petrol Products (Petroleum Levy) Ordinance, 1961, to declare RLNG a petroleum product.

Ogra says on record that “keeping in view the economic considerations, only rational, prudent and unavoidable costs should form part of RLNG prices so that unnecessary burden should not be passed on to end consumers and the prices are kept within reasonable limits in comparison to alternate fuels, so as to remain viable to produce cheaper electricity and other products”.

This means that the random transportation charges, capacity allocations and margins of Sui Gas companies, the Pakistan State Oil and other players in the supply chain may be subject to scrutiny. But if the Economic Coordination Committee of the cabinet pre-determines these price heads, Ogra may find its hand tied.

As a solution, the regulator has advised the government that “an amendment in Ogra Ordinance shall be appropriate to regulate this activity”.

It says a fresh proviso under section 8(4) of the Ogra ordinance should be inserted to exclude RLNG from the scope of revenue requirements determined under section 8, saying “provided that subsection (1) till (4) shall not be applicable in case of RLNG price determined under section 43(B)”.

It will mean that the RLNG will be dealt with separately and will not be part of revenue requirements of gas utilities as these will be paid direct commission on RLNG price which will go directly into its profit instead of making it a part of income or revenue requirement.

That is not all. Another amendment will be required to empower Ogra to follow a new scheme under which it will treat RLNG as a separate entity – a jurisdiction the regulator itself has the powers to determine and now wants to surrender to the federal government against the basic idea of deregulation.

Ogra also wants the ministry of petroleum to devise a proper mechanism and detailed procedure, in line with other petroleum products, for RLNG price computation and notification so that it can be executed in a proper and timely manner.

Ogra has opposed four per cent margin allowed by the government to the PSO for LNG handling, saying that it is on the higher side and works at Rs40 per MMBTU, which shall consequently impact the public at large, more specifically all electricity consumers.

Published in Dawn, June 22nd, 2015

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