EDITORIAL: It seems the Oil and Gas Regulatory Authority (Ogra) blundered into allowing gas companies to charge about 6.7 percent higher system losses to consumers of re-gasified liquefied natural gas (RLNG) for at least five years, which cost them a hefty Rs350 billion and resulted in significantly higher charges. And now news reports suggest that in an effort to rectify all the accounting and regulatory mistakes two of Ogra's own internal departments, gas and finance, are tossing the blame around. It turns out that what the Authority is calling a mistake occurred because of misunderstanding and non-implementation of a 2016 decision of the Economic Coordination Committee (ECC) of the Cabinet, which provided for distribution losses to be charged at actual. And it is interesting, to say the least, that the gas companies, Sui Northern Gas Pipelines Ltd (SNGPL) and Sui Southern Gas Company Ltd (SSGCL), have been claiming losses of less than 4 percent for RLNG yet were given the benefit of about 11 percent. The official record quoted in the media also states that at the time of the determination of the final revenue requirement (FRR) of SNGPL, "it transpired that no effective and objective determination was undertaken by Ogra relating to distribution loss," which at least puts industry, CNG sector, power plants and bulk consumers of RLNG in their place.
Every now and then something comes out to suggest that Ogra doesn't exactly have its house in order. Just a couple of months ago, it was accused of not being able to make oil marketing companies (OMCs) comply with official minimum stocks requirements, which resulted in a sudden shortage of fuel across the country. Now it seems Ogra doesn't understand or has forgotten that determination is a very lengthy process which requires, as its own member gas mentioned in the proceedings, everything from independent in-depth reviews to verification, due diligence and calculation of actual purchases and a whole lot more. Yet Ogra's gas department had been proposing whatever SNGPL was claiming all this time. The member gas also put on record that provisional RLNG pricing for July, which calculated 17.83 percent losses for SSGCL and 11.45 percent for SNGPL, were simply not convincing.
Clearly, there is an urgent need to sort out Orga's internal working especially the approach currently in place to allow unaccounted for gas (UFG) on RLNG. One of the first questions that must have come to the minds of many experts is whether it even has the capacity and capability to carry out the kind of due diligence needed and ensure proper evaluation, analysis and verification of distribution losses relating to RLNG of both gas companies. And if it turns out that it does not, is there even a fallback strategy in the organisation's rules somewhere that can perhaps allow employment of services of outside specialists to sort out all the mess for the time being? For, as things stand, the matter has become something of a legal liability because of Ogra's lack of quorum. Apparently, all the complications made the former chairperson withdraw approval of the LNG notification for July just one day before she retired. That naturally made Ogra's member finance withdraw his approval for the RLNG price. And that is why the monthly price notification for RLNG stakeholders has been withheld as opposed to its usual circulation in the first week of every month. Now it can only be issued once the quorum is complete; and there's no knowing when that is going to be.
Surely, the government cannot expect consumers and industry stakeholders to wake up to such and just accept things as they are just because everybody is now promising to do something about it. Even before the long process of determining who is responsible for all the losses and just how they will be compensated can be thought through, there is the matter of getting Ogra out of its present state of paralysis. How can a matter like lack of proper quorum be allowed to disrupt proceedings as serious as these? Why weren't any problems that forced the withdrawals of price notifications taken up and dealt with at the right time? And how long would the authorities have taken to wake up to this if it hadn't suddenly appeared in the press? The petroleum ministry must put all the cards on the table at once. Everybody should know in clear, quantifiable terms exactly what happened to cause the blunder, what is being done about it and who is doing it, how long will it take for the mess to be cleared, and what is being done to make sure that something like this never happens again.
Copyright Business Recorder, 2020
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