ISLAMABAD: The Oil and Gas Regulatory Authority (Ogra) and the oil industry are negotiating an out-of-court settlement on the new fee structure that has been in dispute for more than a year, sources said.

A senior official familiar with these talks said the two sides were also paying millions of rupees raised from consumers to lawyers while mutually negotiating a deal.

Interestingly, the oil industry — led by the Oil and Companies Advisory Committee (OCAC) — has now come up with a demand that all deregulated businesses of the oil industry should be exempt from fee and duties and instead a fixed fee should be charged to all refineries and marketing companies irrespective of their size and sales.

Sources said two delegations of the oil industry had two separate meetings with the Ogra leadership last week – one seeking an immediate end to the imbroglio and the other discussing specific proposals on fee structure with an annual target of about Rs150 million.

The Ogra leadership is reported to have told industry representatives that it would be unfair to charge the same fee to all the players without differentiating if they earned a billion rupees or 100bn rupees.

Ogra wants a revenue generation of at least Rs150m per annum from the oil industry to meet its expenses.

The oil industry has, nevertheless, proposed that fee and duties should be imposed on the basis of two principles. First, a fixed fee of Rs2m be applicable to all companies including marketing companies, refineries and pipeline companies so that every company contributes equitably.

Second, a variable fee be imposed that should fluctuate on the basis of annual throughput i.e. actual production for refineries, actual pipeline throughput of fuel products for pipeline companies and actual sales of only fuel products for OMCs. At the same time, non-fuel products currently in the deregulated sector like asphalt, jet based oil, solvent oils, carbon oil, process oils, LPG, lubricants and greases should be exempted from inclusion in volumes for calculating fees.

On top of that, the industry has also demanded that any fuel product to be deregulated in future by the government would also move out of the ambit of determining annual fees.

An official said if the principle of deregulation was accepted, then the entire range of petroleum products stood deregulated under the law, except for kerosene oil whose price is notified by the petroleum ministry. Also, there would then be no source of revenue for the regulator when all products are deregulated, he said and argued that all sales including that of deregulated products should be subject to annual fee.

The two sides are expected to sign an agreement once they sort out differences to cover all changes to the petroleum rules 2016 and fee structure and then submit a settlement agreement in the court. The oil industry has demanded that the regulator should give up its claim for fee during the period of dispute and start collections once fresh notifications are issued after clearance of the court.

A six-member committee, three each from both sides has been in talks for more than eight months now. The Ogra team is led by chairperson Uzma Adil Khan while the OCAC team was led by its chairman Aftab Hussain.

Earlier, Ogra had requested the Islamabad High Court to vacate a stay order issued on a petition of OCAC challenging the legality of the new fee structure under the ‘Pakistan Oil (Refining, Blending, Trans­portation, Storage and Marketing) Rules 2016’. The court did not entertain the request.

The two sides have been at loggerheads over the fees imposed on downstream oil sector by the regulator early last year. The rules notified in February last year required all oil refineries, marketing companies and oil pipeline companies to pay Rs2m non-refundable fee for grant renewal, modification, extension, assignment, review, transfer, amendment, relocation or re-issuance of a licence.

Likewise, oil blending or reclamation or grease plants are to pay Rs50,000 fee while lubricant marketing companies are required to pay Rs1m fee. Oil storage and testing facilities are required to pay Rs100,000 and Rs500,000 fee respectively.

Moreover, all these entities are also required to pay 50 per cent of licence fee for modification, extension, transfer or review of their licences. On top of that, every refinery, OMC, lubricant marketing company and pipeline is also required to pay 0.005pc of gross sales. This 0.005pc fee of the gross sales in particular was being viewed by the oil industry as a ‘sales tax’ which it argued could only be imposed by the government and was outside the purview of the regulator.

The new rules also entailed maximum validity of a licence for 30 years for a refinery and renewal for a maximum of 15 years. The OCAC, however, contended that companies once having obtained a licence and operating successfully, contributing to the national kitty and the economy should not have to reapply for a new licence as no reasons had arose for a fresh one.

Published in Dawn, February 22nd, 2017