May 14, 2008	Wednesday	Jamadi-ul-Awwal 8, 1429

KARACHI, May 13: The Oil and Gas Regulatory Authority (Ogra) has taken serious notice of the Rs750 million invested in the IT-related project by the Sui Southern Gas Company without “serious feasibility study and cost benefit analysis”. It has maintained that the utility “simply failed to provide satisfactory justification to support a very large IT-related expenditure at the time of commencement of the project”.

This was spelt out in Ogra’s decision of Sept 14, 2007 in case No OGRA-6(2)-2(3)/2007-DTRR in which the authority had also noted “evidence of unprofessional and reckless spending”.

According to sources, the SSGCL obtained Oracle-based software which was supplied by the Dubai-based SPL. They added that a sizeable quantity of hardware, computers and UPS were supplied to the company by Engineer Mohammad Baseer Ahmad, who was also the chief of the utility. Perhaps that was the reason why no serious feasibility was carried out as some of the officials who looked after this project had also served with the former chief in civil aviation.

In its decision on the SSGC’s petition filed in August 2006 for the determination of its Final Revenue Requirement (FRR), which was admitted by the authority on Aug 24, 2007, Ogra has maintained that during the period the SSGCL had incurred Rs204 million in respect of capital and revenue IT-related expenditure. The amount has been booked by the petitioner under various heads.

According to details of the IT-related expenditure by the utility, Rs83 million was spent on computer and ancillary equipment, and Rs45 million on computer software, shown as an intangible asset. The company has also shown Rs32 million as revenue expenditure for software licence and development charges while Rs6 million was for software maintenance charges and Rs17 million for computer repairs and maintenance.

The authority noted that the petitioner had booked software expenditure amounting to Rs45 million under the head of “Intangible Assets”. It said that intangible assets were not to be capitalized for the determination of revenue requirement and expensed out in the same year, as they did not qualify as “Operating Fixed Assets” per the ADB loan covenants. Therefore, it shifted the amount from capital expenditure to revenue expenses for the said year.

According to the Ogra decision, a team of the authority had held a detailed discussion with the petitioner’s officials to evaluate as to how far the benefits achieved were proportionate to the huge expenditure of over Rs500 million during the last four years while an additional Rs250 million was projected to be incurred during 2007-08. In the course of this meeting, the petitioner was asked to submit specified concrete quantitative information about cost savings, service improvements, project milestones, targets etc, in respect of the major projects. After the meeting, the requirements were communicated in writing also.

The petitioner did respond in writing but did not provided adequate information about the achieved and anticipated concrete benefits of the IT projects in quantitative terms and had stated that the key performance indicators were being set up now when the implementation of the ERP project had been completed.

“This unmistakably shows that no serious feasibility study and cost benefit analysis was carried out at the time of commencement of the project,” Ogra said in its decision.

The SSGCL had further stated that it would be able to provide the accrued benefits and cost/benefit analysis in respect of the CIS system by December 2007, once again, owing to the absence of identified key performance indicators.

In view that Ogra had provisionally allowed IT-related expenditure at 50 per cent of the claimed amount, that is Rs102 million, subject to the provision of satisfactory information.

According to sources, despite spending heavily in software, the company was spending a huge amount on training of its staff outside Pakistan, including Sri Lanka, Dubai, Germany, South Africa and Australia.

When this issue was raised with Senior General Manager Zuhair Siddiqui, he said it was done because of the travel advice to foreigners. He justified it also by saying that there was hardly any difference in airfare between Karachi and Islamabad and between Karachi and Dubai or Sri Lanka. His reasoning in this regard was not convincing, especially in the context of allowances paid in foreign exchange and travel beyond Dubai.

Mr Siddiqui said many of the issues raised by Ogra would be resolved.

This reporter asked the SSGC to provide a written reply to the issues raised during the conversation with Zuhair Siddiqui, but the SSGCL did not do so.