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Gas consumers spared Rs9bn dent, for now

January 04, 2013


ISLAMABAD: The federal cabinet did not approve on Thursday a proposal by the petroleum ministry to pass on to honest consumers over Rs9 billion in annual cost of gas theft in areas hit by security problems and constituted a committee to examine its fallout after key ministers strongly opposed the move.

Approval of the request would have increased tariff for consumers of the SSGC and SNGPL by up to Rs12 per unit in the election year.

According to an official, Law Minister Farooq H. Naek and Finance Minister Abdul Hafeez Shaikh were the most vocal opponents of burdening the consumers as the feared the move would have serious legal and political ramifications.

As a conclusion could not be reached after over two hours of squabbling, Prime Minister Raja Pervez Ashraf constituted a three-member cabinet committee to look into the issue in detail from legal, financial and political angles. The Prime Minister’s Adviser Dr Asim Hussain and the petroleum secretary also strongly pleaded a case to protect the gas companies.

The committee, led by Law Minister Naek and comprising Climate Change Minister Rana Farooq Saeed Khan and Capital Administration Minister Nazar Mohammad Gondal, was asked to submit its report within three days.

The sources said the law minister argued that the Supreme Court was already hearing a case on gas pricing and the government should not introduce un-defendable measures. He also said that the regulatory authorities should be allowed to function independently in accordance with the law.

The finance minister argued that instead of ‘rewarding inefficiency’ the companies should be made to improve their operations and management.

The heated debate led at one stage to Information Minister Qamar Zaman Kaira reminding a participant to lower his voice and not to forget that the meeting was being presided over by the prime minister.

The sources said Oil and Gas Regulatory Authority (Ogra) Chairman Saeed Ahmad Khan and Vice-Chairman Sabir Hussain opposed the petroleum ministry’s demand for allowing the gas companies to charge the consumers Rs9.4bn on account of gas losses in insecure areas, non-metered consumers and minimum fixed charges, saying it could pass on only Rs3.57bn to them.

They said the regulator was already allowing up to seven per cent unaccounted for gas (UFG) losses to be recovered from existing consumers under an interim arrangement owing to court cases and if it allowed the three more heads in the tariff the total loss recovery from them would cross 11.5 per cent.

The Ogra chief informed the cabinet that under Section 21 of the Ogra Ordinance, the government could give policy guidelines on pricing mechanism, but could not fix parameters and set benchmarks -- the domain of the regulator.

He said the regulator had after a thorough process allowed Rs3.57bn to be recovered from consumers under three additional heads against gas companies’ demand of Rs8.4bn. The petroleum ministry was asking for an even higher allowance of Rs9.4bn.

The cabinet was informed that the Sui Northern Gas Pipelines had sought recovery of Rs973 million on account of law and order problems, but Ogra had approved Rs616m. The SNGPL had sought Rs3.2bn for non-consumers and Ogra allowed recovery of Rs1.9bn. A recovery of Rs2bn for volume of un-metered gas was disallowed by Ogra. Thus, Ogra allowed passing on Rs2.5bn losses to consumers against SNGPL’s demand for Rs6.3bn. The ministry on Thursday sought tariff adjustment for Rs6.4 billion.

Likewise, the Sui Southern Gas Company had sought Rs373m to compensate for the security situation in Balochistan, Rs2.1bn for un-metered gas and Rs597m for non-consumers, totalling Rs3bn. Ogra had allowed Rs1.3bn under the three heads.

Ogra informed the cabinet that the gas companies had registered about 300 cases of theft, but had failed to take them to conclusion because of lack of evidence and follow-up despite strong laws available to penalise thieves.

While the two gas utilities have obtained stay orders from the Lahore and Sindh High Court against Ogra’s determinations setting system losses at 4.5 per cent and the Supreme Court is hearing a case for recovery of over Rs83bn from some of the authority’s members, including a former chairman, for allowing higher UFG benchmarks in the past, it has been compelled to allow up to seven per cent UFG losses.

An official said that if the two high courts upheld Ogra’s determinations, the difference between 4.5 and seven per cent losses would have to be recovered from gas companies and passed on to consumers over two years.