The energy crisis in Pakistan has not emerged overnight. Such a crisis has been systematically created through inappropriate planning. Institutions are created without reducing the functions or transferring the functions of previous institutions to new ones.
One such example is the continuing role of the Department of Explosives on the midstream and downstream operations of the oil and gas industry, despite the subsequent creation of the independent regulator Oil and Gas Regulatory Authority (Ogra) for the very said purpose.
As an immediate measure, recently, the government has rightly emphasised the promotion of LPG business by directing the two predominantly public sector gas utility companies to also import and distribute LPG on a larger scale to mitigate the issue of natural gas shortage as far as possible.
Although LPG is the most expensive fuel, due to its economical moveability and short switching time, it is widely baptised as a poor man’s fuel because of its ability to reach those living in far-flung areas with no natural gas distribution network. LPG, otherwise, is the most expensive fuel in terms of its cost per metric million British thermal units as compared to natural gas, CNG, kerosene, or RLNG.
Despite the government’s efforts to increase LPG supplies before the start of the last winter season, no significant headway could be achieved. Local LPG production is limited, which can not be increased without additional sources of rich gas within the country.
The convoluted process of improving gas supply takes several years, allowing incidents of corruption to increase manifold
Apart from the ever-increasing foreign exchange issues, handling, bottling and distribution of additional volumes of LPG with the existing storage, transportation and distribution network is a serious bottleneck which cannot be removed swiftly. This is due to the multilayered, overlapping and non-conducive regulatory processes and approvals required to establish new bottling plants, manufacture cylinders, approval of LPG transport vehicles, storage tanks, distributors etc.
Ogra is currently acting as an umbrella regulator, which is mandated for the licensing of regulated activities, among other things, relating to the LPG/CNG sectors. As per LPG rules, almost all international standards are prescribed, which are to be followed by the stakeholders throughout the LPG value chain, and Ogra is to ensure their compliance.
LPG and CNG sectors operate in midstream and downstream of the oil and gas sector and squarely fall within the jurisdiction of the Oil and Gas Regulatory Authority. Ogra’s mandate is to foster competition, increase private investment and ownership in the midstream and downstream petroleum industry, protect the public interest while respecting individual rights and provide effective and efficient regulations.
Section 43 of the Ogra ordinance contains an overriding provision whereby all other laws cease to have any effect on the commencement of the said ordinance, and Ogra shall, subject to the provisions of this ordinance, be exclusively empowered to determine the matters in its jurisdiction.
Interestingly, the Office of Director General Explosives, which operates under the administrative control of the Petroleum Division, has been functioning on the back of the Petroleum Act 1934, the mandate of which had been overridden by the Ogra Ordinance 2002. Yet the office of DG Explosives continues to assume and perform all licensing functions and specify and review standards relating to the equipment and materials used in LPG and CNG industry, illegally.
As per the present practice, which is contrary to the applicable legal framework, project developers in the oil, CNG and LPG sectors are forced to obtain a number of approvals/no-objection certificates (NOC). In addition, companies have to obtain a licence from the Department of Explosives.
The license from Ogra is then granted on the basis of all other NOCs and licenses issued by other departments. Ogra also performs a quality check of the equipment and systems and verifies them before the facility is allowed to operate by qualified third-party inspection companies.
This cumbersome process completely defeats all efforts of the government to increase the supply. Multilayered NOCs, approvals, licenses etc, not only take years to get, but incidents of corruption increase manifold. The size and amount of corruption sometimes make the projects unviable, and the entire plan/rhetoric of “one window” or “ease of doing business” goes to the dogs.
To truly create one-window operations, Ogra should be authorised by all the relevant departments to act on their behalf and issue licenses based on standing authorisation from the relevant departments. Ogra should also immediately make improvements in its regulations to act as a one-window regulator wherever required.
If there were a sincere desire to improve LPG/CNG’s supply side, the Petroleum Division would authorise Ogra to perform all functions currently carried out by the Explosive Department relating to the regulated activities of the midstream and downstream oil and gas industry.
The writer is a petroleum lawyer and Managing Partner at Arif and Associates.
He can be reached at email@example.com
Published in Dawn, The Business and Finance Weekly, March 27th, 2023