ISLAMABAD: The Oil and Gas Regulatory Authority (Ogra) and the oil industry have reached an out-of-court settlement on a two-year old dispute over fee structure payable by all oil marketing, refining, storage, and pipeline companies.

The two sides have signed agreement that doubles the term of licence for the oil related companies from 15 to 30 years with a fee of Rs2.5 million per licence while annual fee structure is based on the market size and throughput sales.

In overall terms, Ogra gave into the demands of the oil industry. Apart of one time licence fee of about Rs50m upfront, the agreement would enable the regulator to receive a minimum of Rs167m revenue every year through various annual fees.

The agreement has been signed by chairman and two members of Ogra from the regulator’s side and Dr Ilyas Fazil, the chief executive officer of the Oil Companies Advisory Council (OCAC) — an umbrella organisation of oil companies.

Under the agreement, the two sides have filed a joint application to withdraw the case pending before the Islamabad High Court where the industry and Ogra have been in litigation for more than a year now. After court’s permission, Ogra would formally issue a statutory regulatory order specifying the fee rates.

The two sides are at loggerheads over the ‘exorbitant fees’ on downstream oil sector imposed under the Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules 2016 rules notified early last year.

The OCAC had expressed serious concerns and reservations over the fee structure, saying if not rescinded would threaten the viability of the Downstream Oil Sector.

The original rules required all the oil refineries, marketing companies and oil pipeline companies to pay Rs2m nonrefundable fee for grant renewal, modification, extension, assignment, review, transfer, amendment, relocation or reissuance of a licence to remain effective for 15 years.

Under the revised rules, all these entities irrespective of their size and sales would now pay a fixed licence fee of Rs2.5m (instead of original Rs2m) but the term of licence would no remain effective for 30 years instead of 15 years.

In addition, all the companies would now be required to pay fixed annual fee instead of previously application 0.005 per cent of their sales. Pakistan State Oil would be required to pay the highest annual fee of Rs24m.

The OMCs having more than 16 million tonnes of throughput would be required to pay Rs24m, which would be charged at Rs22m for annual throughput of 14-16 million tonnes.

The annual fee for oil marketing companies would gradually reduce by Rs2m each for annual throughput of two million tonnes each. The smaller companies with less than one million tonnes would pay annual fee of Rs3m.

The refineries with throughput of 6m tonnes and above would pay Rs11m annual fee that would gradually reduce by Rs2m each for every 2m tonnes lower throughput.

Pipeline companies would pay Rs5m annual fee for more than 6m tonnes of throughput and scale down Rs2m for two million tonne lower throughput.

In addition, oil blending facilites, grease and reclamation plants would pay an annual fee of Rs100,000 to be linked with consumer price increase while lubricant marketing companies would be required to pay 0.005pc of their gross sales as annual fee.

Likewise, the storage facilities would pay Rs100,000 annual fee while oil testing facilities would pay Rs500,000.

In March 2006, the regulation of Mid and Downstream Oil Sector was transferred to Ogra from the petroleum ministry under which some powers were retained by Director General (Oil), some were transferred to Ogra and some powers were to be jointly exercised.

Since Ogra was regulating the Oil Sector under Pakistan Petroleum (Refining, Blending and Marketing) Rules 1971 which covered only licensing for establishing new Oil Marketing Companies (OMCs) and construction to Lube Oil Blending and Reclamation plants.

Under section 41 (1) of the Ogra Ordinance, the regulator, in consultation the provincial governments and the petroleum ministry after the 18th amendment, drafted the Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules, 2016 which were notified on January 22, 2016.

The Ogra said the new Rules, 2016 will also help in providing level playing field through enforcement of Technical Standards by carrying out 3rd party inspections to ensure safety/integrity of oil installations.

Published in Dawn, June 10th, 2017