ISLAMABAD, Dec 1: The World Bank has criticized Pakistan for setting up a ‘toothless’ Oil and Gas Regulatory Authority (Ogra) that could not regulate the petroleum sector independently.

The bank said that Ogra, which had conflict of interest with the government, had no powers to regulate the oil and gas sector independently and its functions overlapped with that of the government.

In its report on Pakistan’s oil and gas sector made available to Dawn, the World Bank said: “Ogra has not been granted full powers in core areas that are normally within the domain of regulatory agencies.”

The World Bank is funding a $3-billion energy sector restructuring programme in Pakistan.

The retail tariffs are set by the government on the basis of political, social and other considerations so that they are not related to the economic cost of service. The revenue requirement and prescribed prices determined by Ogra deal mainly with the methodology for assessing the average tariff required to meet the agreed returns, and do not deal with the allocation of costs among consumer classes.

The government has set priority guidelines for the curtailment of service in the event of gas shortages. These guidelines, however, are to be enforced through the director general of gas (DGG). This raised a number of issues regarding the merits of having DGG involved in enforcing curtailment guidelines, while the DGG is not monitoring access rules nor is it involved in solving access disputes.

The World Bank is of the view that curtailment is a specific task that needs to be handled by Ogra. In addition, the Ogra ordinance and tariff and licensing rules already refer to objectives and principles in several areas such as open access and rate making.

It is felt that enough legal basis exists in the ordinance and there is no need to seek government policy guidelines to further qualify third-party access. Rule making can proceed on this basis and according to the organization and structure of the system. “Otherwise, if both the GoP and Ogra get involved, possibly with conflicting aims, there would be a need to negotiate the rules, which is likely to cause delays.”

The bank says the GoP shares the general normative functions with Ogra when setting policy guidelines, approving the rules and exercising some specific regulatory activities such as the final determination of the prescribed rates and retail tariffs applicable to natural gas.

The report said that sharing the regulatory functions with the government would compromise the independence of Ogra. Lobbying at the levels of Ogra and the government will be expected to occur and may compromise good decision-making when, for instance solving disputes among various parties.

Also, the scope of Ogra is not stated unambiguously so that it must be interpreted. The lack of clarity has already generated serious misunderstandings in the sector, the bank stated.

The World Bank has advised the government to define its role and that of Ogra in precise terms, particularly in terms of the scope of regulation and the organization of Ogra.

The bank has also proposed to amend the Ogra ordinance to be consistent with the restructuring programme and the government should define the scope and length of the transition period.

The government should also clearly define the segments to be regulated, both for natural gas and petroleum products. It should also define the regulations that will apply separately to each segment, including the interface of the regulated activity with those that are potentially competitive.

The World Bank has asked the government that the pricing function should be transferred fully to Ogra. The distinction between the rules and regulations is presently blurred. The government should not intervene in the issuance of rules, and the ordinance should give power in that respect only to Ogra.