The Oil and Gas Regulatory Authority (Ogra) is under fire for reportedly hurting the business of liquefied petroleum gas (LPG) companies through imposition of price cap at a time when prices are already showing declining trend, well-informed sources in Ogra told Business Recorder on Wednesday.
The sources said the Shell Gas (LPG), one of the producers, had written a strongly-worded letter to the Ogra''s Senior Executive Director (Operations), a copy of which has also been sent to the Petroleum Secretary, stating that the company had suffered Rs 262 million loss due to unjust mechanism adopted by the regulator.
The letter, available with this newspaper, states that once again the Ogra has imposed a price cap, when prices are already showing a downward trend due to the onset of summer. Prices have come down by approximately Rs 150 per 11.8-kilogram cylinder in the last one-week, says the letter written on February 13.
According to the company, Section 3, 4, 3 of the LPG Production and Distribution Policy, 2006 state "Ogra will regularly monitor the LPG prices and intervene in exceptional circumstances if consumer prices are considered unreasonable." In the present situation when prices are going down day by day, (despite a base price increase by the producers), no "exceptional circumstances" can be distinguished. Therefore, the Ogra itself is not implementing the quoted section in letter and spirit.
Shell''s view is that the Ogra repeatedly intervenes and is not allowing market forces to take their course and this may be detrimental to a sustainable market development, which was the intention, when this industry was deregulated in 2000. Shell has also drawn the attention of the concerned authorities to Section 3, 4, 2. of the LPG Policy 2006, which states.
"The Federal government will continue to follow its deregulation policy. However, to ensure that cartels are not formed for charging a higher consumer price of LPG, the Ogra will determine the reasonableness of price, keeping in view the import parity price of the LPG, producer price and audited accounts of LPG marketing companies for the last two years."
Shell further asked the regulator to examine its audited accounts for the last two years, which would prove that the company had incurred major losses (Rs 182 million and Rs 81 million respectively) and as a result of which, equity was injected to maintain various regulatory requirements.
"We have a genuine expectation of earning a fair return on our investments and for the last two years because of repeated interventions and policy changes on import parity pricing, our company has suffered and we have been unable to payout any dividends to our shareholders, who have shown their trust and some of whom have invested their life''s savings in our company for as long as 40 years," said General Manager/ Chief Executive Officer (CEO) Fawzia Kazami in the letter, a copy of which has also been sent to the Member, Ogra(Gas).
The company is of the view that it may not be able to continue to trade at the capped price as it has a duty to its shareholders to prevent further equity erosion. Another market player told this scribe that currently, there was no extraordinary situation prevailing in the market that merited intervention by the regulator. "Ogra has once again failed to take into account the suggestions of the industry to add a margin of at least Rs 200 per domestic cylinder on the producer price and Rs 60 as distributor margin to reach maximum consumer price," he commented.
According to the present working, the producer price is Rs 548 per domestic cylinder and with the addition of primary transportation, sales tax differential, administration and filling charges, depreciation and cylinder maintenance expenses and taxes and reasonable margin for the company, the price proposed by the Ogra would mean a net loss to the marketing companies, which was not acceptable and was illegal to the extent that the regulator could not compel any company to work in loss. "We urge Ogra to hold a meeting to determine the method of fixing maximum consumer price in a transparent way, taking into account ground realities and the opinion of all stakeholders," he concluded.
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