In spite of the lapse of over two decades of the theoretically competitive market, the two gas companies are still operating as sole monopolies, against their license conditions and regulatory framework. After the creation of OGRA in 2002, two gas companies were granted licenses for the transmission, distribution, and sale of natural gas in their respective franchised areas with exclusivity that was supposed to end on 30th June 2010.
The Federal Government, regulator, and gas companies were supposed to work together to create an enabling environment for private investment in gas sector before the end of the exclusivity period. However, due to political interference, the federal government and regulators have failed to implement the necessary regulatory changes that would facilitate creation of conducive market environment for new entrants, despite these changes being the very reason OGRA was created.
OGRA has made some recent gas price determinations and notifications based on the Federal Government’s arbitrarily increased gas prices and shuffling with cross subsidies without regard to the economic implications thereof. Due to the complex, uncertain and ambiguous mechanism now adopted for different categories of retail consumers, it is impossible to calculate the total revenue expected out of pricing assault. Besides, Suis have been given unlimited power to adjust the blend of imported and local gas as per their preference, without any transparency or accountability. This leads to a situation where the estimated revenue against different blends of imported and local gas cannot be estimated with reasonable certainty. Moreover, this undermines OGRA’s authority to set natural gas prices and violates Sui companies’ license conditions, rendering OGRA as purposeless institution.
The summary which was submitted and approved by the Federal Government, itself contained an ambiguous statement whereby unknown surplus revenue was intended to be generated to cover for the RLNG diversion, which was later interpreted differently by the government.
Again, gas companies have requested a significant increase in gas prices under the Revised Estimated Revenue Requirement, effective from 1st January 2024. However, actual revenue recovery during the year 2023-24 cannot be known till the end of 2023. Gas companies have also demanded an increase in the amount of security deposit, equal to three winter months’ gas consumption and that too at the highest slab rates, effective January 1, 2024. These two petitions are under public hearing starting from 11th December 2023 in Lahore.
The increase in the ‘security deposit’ does not serve any other purpose except to, (i) forcefully collect illicit revenue like ransom, and (ii) lock-in the customers by increasing the switching cost, so that no third-party gas supplier may enter the gas market. This step does not seem to have been taken with any care for the national economy, gas market and consumers. Gas companies have adequate safeguards to secure timely payments, and therefore, there is no justification for putting any additional financial burden on gas consumers, especially when they are already forced to switch to alternative costly fuels such as LPG due to massive and chronic gas load shedding. In principle, the regulator should consider reducing the entire security amount as no sustainable gas supplies are provided, against their license conditions.
Simple majority shares in the two gas companies are held by the Federal Government and, the remaining are held by private investors. The direct benefit of the increase in gas prices goes to the private investors, at the political and general public cost as is evidenced by the increase in share prices of the two gas companies ever since gas prices were increased. Knowing that substantial percentage of shares are privately held and traded at stock exchanges of Pakistan, any gas price increase and that too “unknown” and “non estimable” collection of revenue brings direct benefits to the shareholders of these two gas companies at the cost of country’s economy, inflation, and increases our cost of production which also in return adversely affect our exports and the same does not remain competitive in the international marketplace.
Unfortunately, the most vital questions of efficiency of gas companies, UFG, uncontrolled administrative costs, gold platting of regional offices even when gas supplies are decreasing day by day, actual status of cash flow of the companies, unfounded and unnecessary litigations costs are all the issues, which gets all ignored and country’s interests compromised when the Chairperson of the Board of Directors of SSGCL, also simultaneously calls the shorts as Federal Finance Minister, and Chairperson of Pakistan Stock Exchange, on the gas pricing matter, as these roles have conflicting functions, obligations and mandates.
The pain of ‘regulatory capture” and “authority capture’ has already been felt by the consumers in the recent gas pricing gimmick and is more to come in the shape of revised revenue requirement determination and the increase in the security advance amount equal to three months estimated gas consumption without even promising supply of any gas to the consumers. An average monthly gas bill of Rs. 2000 on previous price gas price has simply gone up to 15,000 per month. Where is all this money going speaks volume about the extent of gimmick played in recent gas pricing mechanism.
Any further tweaking with the already defective gas pricing system will only create more complexity, loopholes, and confusion, without bringing any clarity or improvement to the national economy or the public. It is about the time for OGRA to independently assess what is presented and said by the management of Gas Companies and allow only what is their genuine entitlements in a most transparent, verifiable and easy for common man’s understanding.
This, however, poses a big challenge to OGRA to play its independent role and assume the authority entrusted under the Ordinance, by completely rejecting what is against the purports of OGRA Ordinance. In the past, OGRA had taken such stances and did not implement the decision of ECC since the same was in conflict with the purports of OGRA Ordinance. At this stage, what minimum OGRA can do is to ensure that; (i) no increase in gas tariff under RERR until the complete year’s total revenue recovery is known, and (ii) no increase in Security deposit whatsoever, is allowed. Also, it would be only pertinent to completely eliminate fixed charges on domestic consumers since there’s no guarantee of regular gas supply, and is anti-competitive. (WNAM not necessarily agree with the views of writer)
(The Author is a former Member Gas (OGRA), an energy lawyer, and an independent oil and gas business consultant. Can be reached at [email protected])
