ISLAMABAD, Nov 27: The Oil and Gas Regulatory Authority (Ogra) has expressed its inability to control furnace fuel prices on purely legal and technical grounds, a demand Wapda believed could offer a solution to the ever increasing power rates.

In a letter to power utility a couple of days ago, the Ogra has stated it had no powers under the law to regulate the oil marketing companies (OMCs) or review the pricing of furnace oil as the government had empowered the OMCs to fix its rates on the basis of international prices independently.

A Wapda official told Dawn that Ogra believed that it would take over the subject of oil pricing at a later stage through amendments in the relevant clauses of the Ogra Ordinance 2002. But in the existing set-up, it had no jurisdiction over the oil pricing mechanism.

Around a month ago, Wapda had written a letter to Ogra chairman to keep a check on furnace oil pricing by the oil companies through a proper regulatory framework in view of the fact that about 50 per cent furnace oil production is local.

They (Ogra) have rather asked Wapda if it could help expedite the process of amendment in the Ogra Ordinance to broaden the regulatory jurisdiction of Ogra, the Wapda official said.

The rising power rates have now become a real problem for the government and the industry and even the donors now believed further increase in electricity cost was not viable in Pakistan. A recent study conducted by the Board of Investment (BOI) has also suggested that doing business in Pakistan was not reasonably attractive.

Officials in the ministries of commerce and industries and production believed that most of the Pakistani products would remain uncompetitive internationally with the advent of World Trade Organization regime two years later mainly because of unreasonably high utility costs.

Wapda also accepts this notion but passes the onus on to the oil marketing companies and independent pricing of furnace oil. It has been demanding of the government since long to bring furnace oil pricing under the framework of Oil and Gas Regulatory Authority (OGRA) to create a level-playing market. Its demand has so far remained unheeded.

Wapda chairman Zulfiqar Ali Khan had recently told President General Pervez Musharraf that it was against the principle of justice to allow oil companies to fix the furnace oil prices independently and forcing the power utility to get its tariff approved from the national electric power regulatory authority (Nepra).

“A strange anomalous situation has been created where input costs are set by the private companies without any check and balance and the end product (electricity) price of the public sector organization is set by a regulator,” an official quoted Wapda chairman as telling the President.

“Electricity tariff in our country is one of the highest in the region, even higher than a few of the developed countries. This position may not be sustainable for our economy any more. The government’s bid to provide basic necessity to the deprived sections of the economy at high pace requiring more subsidies, simultaneously addressing issue of higher industrial and commercial power tariff, basically to provide level-playing field to the industry in the wake of globalization, requires serious reform effort by all concerned. In this connection, among other factors, controlling input costs, specially the fuel prices, has emerged as one of the most critical issue,” reported Wapda to the federal government.

Wapda is of the view that because of repeated fuel oil variations on fortnightly basis, it has to seek quarterly fuel based tariff adjustments from the Nepra and attract public criticism for tariff hike despite the fact that it had no control over oil prices.

It believed that oil companies should be made to seek oil price revisions from Ogra like power utilities had to get approval for power tariff from Nepra.

Ogra officials said that although the Wapda demand was quite justified, Ogra had no powers under the law to evaluate whether the fuel oil price fixed by the oil companies was transparent.

These officials said that Ogra was a toothless regulator when compared with Nepra because most of the pricing issues have been kept out of its jurisdiction under the Ogra ordinance 2002.

Wapda has been saying repeatedly that fuel oil prices have increased by over 500 per cent since early 90’s and major part of Wapda revenue is consumed by the fuel component that made a big chunk of power tariff.

The government allowed oil companies early last year to enjoy complete freedom in fixing fuel oil prices at their own on fortnightly basis in the light of international oil prices as part of petroleum sector deregulation. The local refineries follow prices fixed by the oil companies despite a major portion coming from the local production.