Ogra to settle system losses dispute on priority

Updated 06 Oct 2020

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The Oil & Gas Regulatory Authority (Ogra) is expected to settle — on priority and with majority vote — a dispute over system losses which has holding back the prices of Regasified Liquefied Natural Gas (RLNG) for two months now. — File
The Oil & Gas Regulatory Authority (Ogra) is expected to settle — on priority and with majority vote — a dispute over system losses which has holding back the prices of Regasified Liquefied Natural Gas (RLNG) for two months now. — File

ISLAMABAD: With the completion of quorum, the Oil & Gas Regulatory Authority (Ogra) is expected to settle — on priority and with majority vote — a dispute over system losses which has holding back the prices of Regasified Liquefied Natural Gas (RLNG) for two months now.

The regulator has not notified RLNG prices after July owing to the disagreement between its two technical departments — finance and gas — over the quantum of losses to be charged by the gas companies to consumers. The controversy emerged a few days before the retirement of former Ogra chairperson Uzma Adil Khan in July when Member Gas Mohammad Arif pointed out a discrepancy in the RLNG tariff.

At the heart of the problem is an anomaly in the LNG pricing mechanism — which a group of Ogra officials advocate for — allowing the cost benefit of about 11 per cent RLNG losses to Sui Northern Gas Pipelines Limited (SNGPL) and 8.73pc to Sui Southern Gas Company Limited (SSGCL).

Another group with the Ogra questions this methodology on the grounds that RLNG supplies are primarily on main lines where actual losses are negligible. The group notes that these proposed losses for RLNG are way higher than local gas losses allowed in gas tariff even on distribution lines (where actual losses are significantly higher than transmission or main lines). Therefore, their argument is that SNGPL and SSGCL do not deserve more than 3pc and 8.85pc, respectively, unaccounted for gas (UFG) allowance even on provisional basis.

The matter came to a naught a few days ago when Member Finance and Acting Chairman Ogra Noorul Haque concluded that since the members and officials of Gas and Finance departments have not reached consensus, the matter could only be decided “when the quorum completes”. He directed the Gas Department to prepare a comprehensive working paper in this regard.

The Member Gas, however, asked the Member Finance to also give detailed reasons for the disagreement which could be made part of the working paper. He recalled that it was earlier held by the majority vote of the Ogra that the issue was of technical nature and was to be decided and approved by the Member Gas which had been done with detailed reasoning.

The delay in issuing the RLNG price notification was causing pricing disparity for the consumers and hence provisional price notification should be issued without any delay, Member Gas observed. He recommended that UFG losses for fiscal year 2020-21 for SSGCL should be taken as 6.42pc (including 0.12pc of transmission loss). Likewise, UFG for SNGPL should be taken at 6.68pc (including 0.38pc transmission loss) on provisional basis.

Interestingly, both the RLNG and local gas are supplied mostly through the same network and metered through the same system. However, local gas is charged with lower UFG than RLNG despite the fact the latter is generally expensive and has lower actual loss being supplied mostly through mainlines.

It is also on Ogra record that total Liquefied Natural Gas (LNG) sales and losses combined should not be more than the fuel received in the system and hence UFG allowance claimed for LNG sales should be the basis for the RLNG price notifications. However, actual sales and UFG charged to consumers put the total LNG quantities about 7-8pc higher.

In a statement in August, Ogra had announced that it would carry out an independent verification of UFG losses through audit to conclude whether or not its previous decisions had caused loss to LNG consumers. The regulator added that retrospective adjustments in the light of audit findings were part of the determination process.

The regulator had made this announcement after it was noted through internal workings that it had erroneously been allowing gas companies to charge about 6-7pc higher system to RLNG consumers for at least five years, resulting in significantly higher rates.

The record suggested that a June 2016 decision of the Economic Coordination Committee (ECC) provided for “distribution loss to be determined and charged at actual. The said loss for the customers located on high pressure transmission lines as well as those customers who are willing to lay their dedicated line shall also be determined and charged as actual. However, for other customers on distribution lines, an actual average UFG for the last financial year will be taken in the determination.” The ECC decision also held that transmission loss to be charged at actual subject to a maximum of 0.5pc.

During proceedings for determination of final revenue requirement (FRR) of SNGPL for the year 2018-19, “it transpired that no effective and objective determination was undertaken by Ogra relating to distribution loss” and whatever had been claimed by SNGPL, had been proposed by the Ogra’s Gas Department and taken as “determination of authority”

The SNGPL had challenged this debate, claiming that in the system gas sector, only one UFG benchmark of about 7pc was considered in the entire network i.e. both for transmission and distribution and at the end consumer prices covered uniform benchmark for transmission and distribution consumers.

The objective of segregating and setting a lower UFG benchmark for transmission segment consumers was to pass on a minimum possible cost to the electricity end consumers.

Published in Dawn, October 6th, 2020