ISLAMABAD: The oil industry has declined to pay annual fees to the Oil and Gas Regulatory Authority (Ogra) unless formal notification of an agreement on fee structure reached in June last year.

The oil industry and Ogra had 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 also signed a formal agreement to double 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 was based on the market size and throughput sales.

However, Ogra or the government did not issue a notification or statutory regulatory order to formalise the agreement over the following nine months. Facing cash flow constraints, Ogra suddenly ordered the Oil Companies Advisory Council (OCAC) to “ensure the payment of outstanding fee from oil industry on the immediate basis”.

The sources said the OCAC — an umbrella organisation of about two dozen oil companies and refineries — asked its members to pay the fee. The OMCs and refineries, however, expressed their inability to pay the fee in the absence of a formal notification.

It was reported that most of the oil companies were listed companies and were required to justify to their boards and shareholders about various expenditures they make. Moreover, the companies, including the public sector Pakistan State Oil (PSO), said they had made provisions in their accounts about the fee payments but could not afford to generate unnecessary audit objections over unauthorised spending.

The payment problem compounded in the absence of Ogra chairperson who was on leave while one of the two remaining Ogra members stopped attending the office without a formal notice to the regulator, creating a gap in decision making authority.

Under the agreement, the regulator is to receive an annual fee of about Rs170 million including one time licence fees of about Rs50m upfront.

The two sides had been in a dispute for more than two years over fees for downstream oil sector imposed under the Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules, 2016.

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

Under the revised rules, all these entities irrespective of their size and sales would 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 a 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 16m tonnes of throughput would be required to pay Rs24m, which would be charged at Rs22m for annual throughput of 14-16m 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 facilities, 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.

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

Published in Dawn, April 10th, 2018