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Govt wants merger of two oil, gas regulators amid opposition

Updated October 15, 2018

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PTI government appears to be reversing progress made in gas sector reforms under previous regime. — Photo/File
PTI government appears to be reversing progress made in gas sector reforms under previous regime. — Photo/File

ISLAMABAD: The Pakistan Tehreek-i-Insaf government appears to be reversing the progress made in gas sector reforms under the previous government and is seeking merger of two oil and gas regulators amid opposition from the World Bank and Oil and Gas Regulatory Authority (Ogra).

Under a reform programme proposed by World Bank consultants, a task force under former prime minister Shahid Khaqan Abbasi had concluded in consultation with the provinces creation of an independent Pakistan Petroleum Exploration and Production Regulatory Authority (PPEPRA) to regulate upstream oil and gas sector i.e. exploration, production and pricing of oil and gas at field gate.

The petroleum division under federal minister Ghulam Sarwar Khan with the support of the finance ministry has now proposed the merger of upstream regulatory functions currently performed by the directorate general of petroleum concessions with Ogra.

Ogra is currently looking after the downstream and midstream oil and gas business i.e. refining, storage and marketing of petroleum products and transmission and distribution of gas, liquefied petroleum gas and liquefied natural gas.

PTI government appears to be reversing progress made in gas sector reforms under previous regime

Informed sources said the petroleum division had asked Ogra to prepare for the Council of Common Interests (CCI) a summary seeking transfer of upstream oil and gas regulation to Ogra as centralised regulator to look after the entire oil and gas sector from exploration and production to their sale to consumers.

Sources in the petroleum division said the regulator had opposed the merger, saying it would create a sort of conflict of interest between facilitating investors and protecting interests of the consumers, besides capacity constraints.

The sources said that in a letter to the petroleum division, Ogra chairperson Uzma Adil reported that the regulator’s rules did not allow moving a summary without consultations with the stakeholders — investors, businessmen and consumers. Moreover, she argued, Ogra did not have the capacity and required expertise to take over the upstream oil and gas regulator.

If at all, the merger of upstream regulation with Ogra was unavoidable, it should be done after consultations with the federal and provincial stakeholders and the capacity building of Ogra which already appeared understaffed and may required increasing its members from the existing four to a dozen or so to accommodate the provinces.

On the other hand, the World Bank argued that if the policy intent was to create a new independent upstream regulator, the proposed PPEPRA legislation would achieve this goal and should be introduced as stand-alone legislation. But if the policy decision is to bring the upstream regulator into Ogra and create one large and consolidated regulator, the bank said, this could be achieved by introducing an amendment to the Ogra Ordinance 2002, relying on the work that had already been done in setting out the upstream regulatory jurisdiction and goals, with a few administrative changes at the Ogra board level — addition of more members.

In consultation with the law and justice division, the World Bank explained that introducing the upstream regulation in Ogra through a new regulation to the Ogra Ordinance 2002 would be a difficult task since this approach did not comply with the conventions of legal drafting and could be subject to constitutional challenge as it changed the administrative structure and the scope of Ogra.

The technical working group under the World Bank has opposed one regulator for upstream, midstream and downstream and instead proposed a separate upstream regulator. It said significant practical issues could arise due to a proposed merger and concluded that “an independent upstream regulator will best achieve the government’s policy goal to ensure a vibrant E&P sector in Pakistan”.

The CCI had in February this year decided to have provincial participation in the upstream regulator — PPEPRA — because the upstream oil and gas sector was a provincial subject under the Constitution.

The provinces have been demanding a greater role in exploration and production of hydrocarbon resources and wanted the proposed PPEPRA to be an independent forum under the aegis of the CCI. The provinces are opposed to the composition of PPEPRA proposed by the World Bank’s technical group that it should comprise a chairperson and four technical members for exploration, production, strategy and finance, as well as legal and compliance as desired by the Centre.

Instead, the provinces proposed that there should be five members in the authority — from the Centre and four provinces — on the pattern of National Electric Power Regulatory Authority.

They said one of the members should be designated as the chairperson and another as vice chairperson on a rotation basis. The first chairperson should be nominated from Balochistan and the vice chairperson from the Centre for a term of one year each.

The provinces were of the view that PPEPRA at the federal level should deal with matters pertaining to oil and gas pricing and petroleum concession management offshore, in AJK, Fata and Gilgit-Baltistan, while the petroleum concession in the provinces should be devolved to the provincial energy regulatory bodies.

Published in Dawn, October 15th, 2018