PD-Ogra dispute lands in ECC


ISLAMABAD: The dispute between Petroleum Division and Oil and Gas Regulatory Authority (Ogra) on a proposal meant to recover RLNG’s UFG from RLNG consumers in a staggered manner with the least impact on the current RLNG sale price has landed in the Economic Coordination Committee of the cabinet, sources close to Prime Minister’s Special Assistant to Petroleum told Business Recorder.

Sharing details, sources said, Economic Coordination Committee (ECC) of the Cabinet on May 11, 2018 considered a summary submitted by the Petroleum Division on policy guidelines with respect to sale price of RLNG and approved the following proposals: (i) M/s SSGC may be allowed UFG based on RLNG handling basis (volumetric basis) in the sale price of RLNG in the form of distribution loss due to swapping arrangements and consumption of RLNG in its franchise area in partial modification in para-3 of the summary approved by the ECC on June 14, 2016 i.e. “ distribution loss to be determined and charged at actual including the losses due to swapping arrangements and consumption of RLNG in SSGC franchise area( determined on volume handled basis i.e. metered system gas in a metered system gas out). 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 from SMS/ TBS at their own cost shall also be determined and charged at actual. However, for the customers on distribution lines an actual average UFG for the last financial year will be taken in determination”; (ii) M/s SNGPL and SSGCL be allowed to manage gas loads on their system through RLNG -system gas swap mechanism for which necessary provision of volumetric adjustment and financial impact may be made on cost natural basis in the sale price of RLNG on a multi-year and ongoing basis through setting up of a deferral account by OGRA and ;(iii) Cabinet Division in consultation with OGRA may process the amendment in Ogra Ordinance, 2002 to cover the entire LNG/ RLNG supply chain in its regulatory framework, i.e., from licencing to pricing of RLNG.

The ECC also decided that Ogra can come back to the government in case it has any reservations about the implementation of its decision .

Ogra has been implementing the guidelines but it was required to take into account the technical and financial impact of the increase in SSGCL’s UFG owing to injection of RLNG into its franchise area and was also required to allow its financial impact to be recovered from RLNG consumers until such time the dedicated RLNG pipeline was fully operational and no gas swap arrangement was in place in lieu of injection of RLNG into SSGCL system so as to avoid recurrence of this phenomenon.

The sources said, as per the ECC’s approved guidelines, Ogra has been determining the sale price of RLNG on a monthly basis whereas M/s PSO is notifying it. The pricing of RLNG is a ring-fenced activity under the Petroleum Production (Petroleum Levy) Ordinance, 1961 and as such all the cost of supply of RLNG is recoverable only from RLNG consumers/ buyers, OGRA determines the weighted average sale price of RLNG for the RLNG imported by PSO and PPL.

Ogra while determining the RLNG price for consumers that are primarily on SNGPL’s system, allowed the gas utility company actual UFG on its transmission network and for the distribution network allowed SNGPL actual average UFG for the last financial year as per the ECC’s approved guidelines. Ogra did not conduct any technical study for allowing such UFG to SNGPL on its distribution network.

ETPL and Pakistan Gas Port Ltd are presently the operational RLNG terminals with the government’s contracted total terminal capacity of 1200 MMCFD. Most of the imported RLNG is transported through a dedicated RLNG pipeline to SNGPL. This pipeline was commissioned in September 2018. Prior to the commissioning SSGCL was fully consuming all RLNG in its distribution network at Karachi and was diverting indigenous gas to SNGPL in lieu thereof. Currently, some portion of RLNG is retained and consumed in SSGCL’s system which is to be swapped with indigenous gas due to the operational constrains beyond the control of the gas utilities i.e. SSGC and SNGPL.

According to sources, SSGCL approached Ogra in the light of the ECC’s approved guidelines and presented its case duly supported with technical data but the request of SSGCL was turned down. SSGCL’s financial statements for the FY 2017-18 are yet to be finalized which are contingent upon the determination of the Final Revenue Requirement (FRR) for the same year by Ogra. Non-finalization of the financial statements has led to the issuance of a show-cause notice by SECP to SSGCL’s Board of Directors.

Petroleum Division is of the view that Ogra’s action of not allowing UFG either in RLNG price or in indigenous gas operations will have an overarching impact on the financial health of SSGCL as it will end up with negative equity in its financials of 2017-18. SSGCL has claimed an amount of Rs 12 billion up to FY 2017-18 in the determination of FRR of 2017-18 and on the other hand SSGCL had added Rs 15.566 billion by the end of 2017-18 to its collection on indigenous gas customers’ tariff as additional revenue earned by selling comingled higher GCV gas to its customers. But due to the ring-fenced nature of both indigenous gas and RLNG pricing, Ogra could not account for the additional revenue of SSGCL against the impact of UFG due to injection of RLNG.

The sources said this issue has been discussed with Ogra in various meetings chaired by the Minister for Petroleum and Secretary Petroleum. Ogra officials initially intended to conduct a detailed technical study by an independent consultant before considering any such request. Since the exercise requires substantial time, during the last meeting held on January 24, 2020, it was suggested that since RLNG customers are already being charged with the actual UFG in the pricing, SSGCL’s claim can be considered to be made good out of the UFG being allowed to SNGPL in the monthly RLNG prices. Such a claim will form a part of the transportation tariff being allowed under the Gas Transportation Agreement (GTA) to the gas companies by Ogra.

The sources maintained that SNGPL has conveyed its reservations stating that the re-gasified gas which was retained in the SSGC system cannot be construed as transported gas nor does it fall under the umbrella of transportation charges. SNGPL is of the view that it cannot be held liable for such gas which has not been utilized by it and they will remain obligated to pay the transportation tariff only if it is determined by Ogra and included in the RLNG price. SNGPL added that the settlement of additional SSGC’s UFG on this account will have to be reciprocated to SNGPL since gas coming from the Northern/KP fields is equivalent to BTU value of RNLG. SNGPL’s UFG will then have to be adjusted by Ogra accordingly to ensure an equal treatment. Also the sale of RLNG in respect of SNGPL during the winters will result in increase in UFG for which a reciprocal allowance will also be required to be allowed by Ogra.

Considering the implementation of the ECC’s approved guidelines and in order to avoid occurrence of negative equity of SSGCL being a public sector company, Petroleum Division has submitted the following proposals to the government: (i) SSGCL’s losses due to swapping/RLNG volume handling should be compensated in the determined tariff of RLNG consumers wherein actual UFG losses have already been charged to RLNG customers. This dispensation should continue as long as RLNG swapping continues, and SSGCL’s pending/ongoing financial impact is fully recovered. As such these amounts will eventually be carved out of the revenue/profits earned by SNGPL during RLNG operations; or (ii) as a result of comingling of high GCV imported RLNG with indigenous gas in SSGC’s system, the company had collected additional revenues from its indigenous gas customers. These additional revenues were adjusted/offered in the revenues requirement of indigenous gas to Ogra, which were to be considered as additional revenue against the sale of comingled gas for offsetting/adjustment against the RNLG volume handling impact on provisional basis in the determination of SSGC’s revenue requirement. The shortfall that occurs due to this adjustment will be recovered in the indigenous gas pricing under revenue requirements determined by Ogra or; (iii) since Ogra has not yet implemented the ECC’s guidelines conveyed on May 11, 2018, the forum has been requested to direct Ogra to provisionally provide due allowance to SSGCL’s UFG impact in the RLNG pricing for the recovery of UFG from RLNG customers in a staggered manner considering the least impact on the current RLNG sale price.

Ogra has not agreed with the proposal, arguing that it will increase the RLNG price and attract litigations and if Petroleum Division accedes to such claim of SSGCL the ECC may directly disburse claim of SSGCL through a budgetary allocation. As an alternate, Ogra has suggested that SNGPL and SSGCL jointly work out and establish the impact of handling RLNG instead of indigenous gas on UFG of SSGCL, adding that if any impact is established, it should be recovered by SSGCL from SNGPL as per the relevant provisions of GTA between both the gas companies without passing any additional burden/distribution loss on RLNG consumers.