KARACHI, June 13: The Oil and Gas Regulatory Auhority (Ogra) has declined a demand of the Sui Southern Gas Company for Rs1,197 million on account of expenses of the Inter-State Gas Systems (Pvt) Limited (ISGSL).

This has been spelt out in Ogra’s decision on SSGCL petition for estimated revenue requirement for fiscal year 2008-09.

The SSGC had initially projected Rs727 million on account of reimbursement of 51 per cent share in expenditure of ISGSL for 2008-09 as against Rs311 million provided in the fiscal year 2007-08.

Now the gas company was seeking Rs1,197 million, pursuant to ISGSL board of director’s approval. Previously small amounts have been claimed as share in expenditure of ISGSL by the SSGC.

Ogra has advised the gas company either to raise funds from its own resources or seek credit from the government.

The authority had provisionally allowed expenditure on account of ISGSL between 2002 and 2008 with the directive to the SSGC to revise the service agreement with the ISGSL to clearly establish rights and obligations of the ISGSL and the boards of directors of the SSGC and the SNGPL in terms of approving the requirements of ISGSL.

It had also directed the SSGC to ensure that classification of funds provided by it to the ISGSL i.e. equity, loan or grant per applicable rules/regulations, should be specified in the revised agreement. The authority observes that none of the conditions have been met.

Ogra has given anxious thought to this expenditure, which has now crossed a billion mark on an annual basis, and has the potential of proliferating further.

The authority has noted that the activities undertaken by ISGSL are in the larger national interest to meet national energy needs in future.

The ISGSL’s expenditure claimed as part of revenue requirement for the said year translates into an average increase of Rs3.12 per mmbtu in gas price.

It has also observed that ISGSL is not a licensee of the authority and hence its expenditure is not classifiable as “operating expenditure” under the revenue requirement mechanism.

The authority observes that it had raised various issues concerning expenditure incurred by the SSGC on ISGSL with the federal government, including request for concise policy guidelines.

The authority has also indicated two options to the government for resolution of the issue: either the federal government should take over the ISGSL as a government entity and all previous expenditure incurred by the gas companies on ISGSL may be converted into interest-free loan payable to the gas utilities on the completion of the project or the gas utilities may raise commercial loans or equity for meeting the expenditure of ISGSL which in case of loan would remain receivable by gas utilities and payable by the ISGSL.

The authority is of the view that either the petitioner should fund this expenditure from its own resources as equity or loan to the ISGSL, or request the government to provide the funding.

The authority is constrained not to include expenditure on account of ISGSL in the consumer price. The authority also adjusts the amounts provisionally allowed earlier of Rs471 million against the petitioner’s revenue requirement for the said year. This decision may, however, be amended in the event of receiving policy guideline under Section 21 of the Ordinance read with Section 2(xxvi) thereof.