ISLAMABAD: While setting provisional price for regasified liquid natural gas (RLNG) later this week, the Oil and Gas Regulatory Authority (Ogra) also has to determine if a statutory regulatory order (SRO) issued by the law ministry could be a replacement to powers of the president, the parliament and the cabinet under the law.

Also, the regulator would have to set margins for companies in the supply chain at a reasonable level against their exorbitant claims to ensure that delivered price of RLNG to specific consumers, power, fertiliser and CNG, was lower than furnace oil for its economic and cost-benefit ratio.

Last week, the Ministry of Law issued an SRO empowering Ogra to fix sale price of RLNG to the end consumers. This was considered a legal enabler towards RLNG price, the last hitch towards signing of a long-term LNG supply agreement with Qatar.

“As an independent quasi-judicial forum, the minimum the regulator could do was to secure independent legal opinion from few leading constitutional experts to make up its mind if powers of the president (to issue an ordinance or sign an act of parliament), the parliament to amend laws and the federal cabinet to approve these changes could covered by an SRO,” a former member of Ogra said.

He said all the stakeholders including the government, gas companies, state-run oil company and Ogra were responsible for the delay in resolving issues relating to RLNG price, payment mechanism and supply chain of a product being used in the country for more than six months now and was so crucial for limiting gas shortages ahead of winter.

At least two former Ogra members said that on the basis of existing LNG policy of the government, tariff rules, LNG rules and Ogra Ordinance, the maximum Ogra could do at present was to provisionally notify RLNG for gas utilities at Terminal Flange (input price for gas companies).

It was important given para 8.2 of the LNG policy of 2011 that required that in case RLNG was procured by the public sector, the price should be determined by Ogra at terminal flange based on imported purchase price of LNG, direct and indirect costs of transportation, storage and regasification incurred by terminal operator and reasonable return on investment made on the terminal. This should include the imported price of LNG and 0.66 cents per million British thermal units (mmBtu) cost of terminal.

The government should them nominate each consumer – CNG, fertiliser and power plants – to which the RLNG price is to be charged so that gas companies could enter into specific contracts with these RLNG buyers.

Beyond this, the gas companies – SSGCL and SNGPL – should file separate petitions for determination of their revenue requirements as required under the Ogra ordinance and rules to set prescribed price (input price) along with normal wellhead prices of natural gas to secure revenue requirement.

On the basis of these prescribed prices, the government should then notify ‘special RLNG sale price’ to consumers. Otherwise, the government and the Ogra may have to face legal complications unless they amend Ogra Ordinance 2011, LNG policy and LNG rules which would be a lengthy process.

It has been pointed out that four per cent margin claimed by PSO on LNG import on the pattern of petroleum products was too expensive as it worked out at around Rs40-50 per unit (mmBtu) as against Rs2-3 per litre on petroleum products. This was also important in view of the fact that PSO was required to import petroleum products from its own resources and then recover from consumers after sale while in the case of RLNG, consumers would be opening standby letters of credit.

One of the members pointed out that policy guidelines issued after the June 6 meeting of the Economic Coordination Committee of the Cabinet also were inconsistent with the Ogra ordinance and relevant rules and were not endorsed by the federal cabinet.

He said Ogra will also have to examine how and why one per cent LNG retainage allowed under the request for proposals for terminal operator were later changed to 1.5pc to protect itself from litigation.

Another member pointed out that the ECC decision to define LNG as petroleum product to bypass CCI was also legally weak because if LNG was treated as petroleum product than gas companies would have to renamed as oil marketing companies and fix sale price at their own as was the case with oil companies in case of oil products.

Published in Dawn, October 7th, 2015

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