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Case No. OGRA-6(2)-2(4)/2009-Review
IN THE MATTER OF
SUI SOUTHERN GAS COMPANY LIMITED REVIEW OF ESTIMATED REVENUE
REQUIREMENT, FY 2009-10
UNDER
SECTION 8(2) OF OIL AND GAS REGULATORY AUTHORITY ORDINANCE, 2002 AND NATURAL GAS TARIFF RULES, 2002
DECISION
November 19, 2009
Before: Tauqir Sadiq, Chairman Syed Hadi Hasnain, Member (Gas) Mir Kamal Marri, Member (Finance) Dr. M. Ilyas Fazil, Member (Oil)
Review of Estimated Revenue Requirement of SSGCL Financial Year 2009-10 Under Section 8(2) of the OGRA Ordinance, 2002 ____________________________________________________________________________
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Table of Contents 1. BACKGROUND........................................................................................................................................................... - 1 -
2. PETITION...................................................................................................................................................................... - 1 -
3. PROCEEDINGS ........................................................................................................................................................... - 3 -
4. INTERVENERS’ / PARTICIPANTS’ VIEWS....................................................................................................... - 4 -
a. General Comments............................................................................................................................................. - 5 -
b. CNG Industry Consumers - specific comments........................................................................................... - 8 -
c. Industrial Consumers - specific comments .................................................................................................. - 9 -
d. Shareholders - specific comments................................................................................................................. - 11 -
5. AUTHORITY’S JURISDICTION, DETERMINATION PROCESS AND DISCUSSION ABOUT RELATED POINTS ................................................................................................................................................. - 13 -
6. COST OF GAS............................................................................................................................................................ - 14 -
7. OTHER OPERATING INCOME ........................................................................................................................... - 17 -
8. DIFFERENCE IN OPENING & CLOSING BALANCE OF NET OPERATING FIXED ASSETS........ - 18 -
9. UFG ADJUSTMENT................................................................................................................................................. - 18 -
10. DETERMINATION................................................................................................................................................... - 19 -
11. PUBLIC CRITIQUE, VIEWS, CONCERNS, SUGGESTIONS ...................................................................... - 20 -
ANNEXURES
I. Computation of Estimated Revenue Requirement for FY 2009-10 ............................................................... - 22 -
II. Provisional Prescribed Prices for FY 2009-10 .................................................................................................... - 23 -
Appendix Written submissions of the interveners
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1. BACKGROUND
1.1. Sui Southern Gas Company Limited (the petitioner) is a public limited
company, incorporated in Pakistan, and listed on the Karachi, Lahore and
Islamabad Stock Exchanges. It is engaged in the business of construction and
operation of gas transmission & distribution pipelines, sale of natural gas, Air-
mix LPG, gas condensate as by-product, and manufacture & sale of gas meters.
1.2. The Authority had determined the Estimated Revenue Requirement (ERR) of
the petitioner for FY 2009-10 (the said year) at Rs. 108,597 million vide its order
dated May 15, 2009, under Section 8(1) of the Oil and Gas Regulatory
Authority Ordinance, 2002 (the Ordinance).
2. PETITION
2.1. The petitioner has submitted this review petition (the petition) on October 17,
2009, under Section 8 (2) of the Ordinance, incorporating in the ERR, the effect
of change in the projected Weighted Average Cost of Gas (WACOG) for the
said year taking into account the latest actual oil prices in the international
market, devaluation of rupee against US $, revised projection of gas purchase
volume based on actual gas availability for the months of July and August,
2009 and latest indications. The petitioner has also included in the ERR a sum
of Rs. 3,885 million being remaining shortfall of FY 2008-09, that was to be
adjusted as part of the instant petition per para 9.3 of the Determination of
Final Revenue Requirement for FY 2008-09 dated September 15, 2009. Further,
the petitioner has revised its estimated operating income arising from gas
transportation charges, sale of gas condensate and processing of gas by M/s
Jamshoro Joint Venture Ltd. (JJVL), considering the impact of change in Pak
rupee / US $ parity. The petitioner has projected a shortfall in ERR of
Rs. 11,606 million, translating into an increase of Rs. 57.22 per MMBTU, w.e.f
January 01, 2010 (Rs. 29.70 per MMBTU on annualized basis).
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2.2. The petitioner has, however, requested to grant interim relief under Rule 5(7)
of Natural Gas Tariff Rules, 2002 (NGT Rules, 2002) by allowing an increase of
Rs. 20.68 per MMBTU in the average prescribed price effective July 01, 2009
thereby enabling it to recover shortfall for FY 2008-09 amounting to Rs. 3,885
million in the first half of the said year. The petitioner has further requested
that increase of Rs. 38.06 per MMBTU in the average prescribed price may be
allowed from January 01, 2010 to capture the variation in cost of gas for the
said year.
2.3. The petitioner has projected the WACOG for the said year to rise to Rs. 238.71
per MMBTU as against Rs. 219.89 per MMBTU, provisionally determined by
the Authority under its order dated May 15, 2009. The prices of crude oil and
High Sulphur Fuel Oil (HSFO) have been rising during June to September,
2009, four of the six months applicable for determining the wellhead prices
during second half of the said year in terms of Gas Pricing Agreements (GPAs)
between the Government of Pakistan (GoP) and various gas producers. This
situation is further amplified due to the devaluation in Pak rupee / US $
parity, from approximately Rs. 81.40 in June, 2009 to Rs. 83.25 in September,
2009.
2.4. The petitioner has given component-wise breakup of requested increase in
average prescribed price as under:-
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Table 1: Component-wise Breakup of Requested Increase in Average Prescribed Price
(0.22)
1.03
A 0.81
20.53
0.04
B 20.57
C 9.94
D=(B+C) 30.51
D-A 29.70
57.22
Rs./MMBTU
Increase in WACOG
Increase due to revised volumes and intercompany adjustment
Decrease in revenues due to revised sales volume and sales mix
Increase in revenues as a consequence of increased US$ exchange rate
Total Increase in Revenues
Increase in Cost of Gas Sold
Total Increase in Expenditure
Net Increase in average prescribed price effective July 01,2009
Net Increase in average prescribed price effective January 01,2010
Total increase in Cost of Gas Sold
Remaning shortfall related to FY 2008-09
2.5. The Authority admitted the petition for consideration, as a prima facie case
for evaluation existed and it was otherwise in order.
3. PROCEEDINGS
3.1. A notice inviting interventions / comments from the consumers, general
public and other interested / affected persons, and intimating the time and
place of the public hearing, was published in daily newspapers, namely: The
News (combined), Express (Combined), Nawa-i-Waqt (Combined) and Azadi
(Quetta) on October 23, 2009. The Authority received applications to intervene
in the proceedings from the following persons / entities:
(i) The All Pakistan CNG Association.
(ii) Karachi Chamber of Commerce & Industry.
(iii) The All Pakistan Textile Mills Association.
(iv) The CNG Dealers Association, Karachi.
(v) S.I.T.E Association of Industry, Karachi.
(vi) Mr. Muhammad Arif Bilwani, Karachi.
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3.2. Written submissions were also received from some of the interveners, which
are appended to this order.
3.3. The Authority admitted all the above intervention requests.
3.4. The Authority held public hearing at Karachi on November 11, 2009. The
following persons addressed the Authority:
(i) SSGCL’s team led by Mr. Azim Iqbal Siddiqui, Deputy Managing
Director, the petitioner.
(ii) Mr. Abdul Sami Khan, Chairman, CNG Dealers Association.
(iii) Mr. Muhammad Arif Balwani of Karachi, Industrial and domestic
consumer.
(iv) Dr. Qazi Ahmed Kamal, Member Managing Committee, Karachi
Chamber of Commerce and Industry.
(v) Mr. Asghar Ali Morawala, Chairman Public Utilities, The
Federation of Pakistan Chambers of Commerce & Industry.
(vi) Mr. Nisar Shehkhani, All Pakistan Textiles Processing Mills
Association.
(vii) Mr. Shabbir Suleman, Vice Chairman, All Pakistan CNG Association
& Chairman FPCCI’s Committee on CNG.
3.5. First, the petitioner made submissions in detail with the help of multimedia
presentation explaining the rationale of the petition. Thereafter, the above
interveners and other participants addressed the Authority.
4. INTERVENERS’ / PARTICIPANTS’ VIEWS
4.1. The substantive points made by the interveners / participants are
summarized below:
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a. General Comments
(i) The petition has been filed two days later than the allowed time frame
(i.e; within 30 days of issuance of the decision under review), therefore,
the same should be declined in the first place.
(ii) Cost of gas has been projected at a very high level owing to inflated
Rupee v/s US $ parity. US $ rate on December 31, 2009 has been
assumed at Rs. 85.50 and the same has been adopted for wellhead price
computations for the period from January to June, 2010. The rates /
prices prevailing in December, 2009 should be excluded from the
computations since the same are not applicable for WACOG calculations
for the said year.
(iii) 31% increase allowed by the Authority, at the time of determination of
ERR for FY 2008-09, was based on the price of crude oil at US $ 147 per
barrel. International oil prices have now decreased significantly,
however, the gas prices in Pakistan are still very high. These high prices
are now being attributed to high rupee v/s US $ parity, the impact of
which could have been marginalized with the decrease in oil prices. This
indicates unwillingness of the concerned authority to pass on the benefit
to the people.
(iv) Failure of economic and monetary policies of the GoP has instigated the
price increase sought by the petitioner. The consumer must not,
therefore, be penalized for the negligence, apathy, lethargy and
loathsome attitude of the GoP, which could not formulate policies to
mitigate the consequences of geo-political situation resulting in
depreciation of rupee value. State Bank of Pakistan, on behalf of GoP,
should provide exchange risk cover to gas utility companies so that this
risk is borne by GoP instead of consumers.
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(v) GoP has failed to re-negotiate the wellhead gas price discounts in
respect of Qadirpur field, owned primarily by public sector companies,
despite lapse of more than two years even though it was required to do
so within 6 months of the HSFO price going beyond US $ 200 per M. ton.
This pending matter is now resulting in huge arrears on account of
foreign exchange adjustment. In view of this unresolved issue, the price
increase demanded by the petitioner is not justifiable.
(vi) The guaranteed return should be abolished or rationalized since the
petitioner’s loan agreement with Asian Development Bank (ADB) has
expired. A new tariff structure linked with market based Karachi
Inter-bank Offer Rate should be implemented by the concerned
authority in order to ensure the vitality of the company. Excessive delay
in implementation of the new tariff regime proposed by OGRA is
in-comprehensible.
(vii) Government, being major stakeholder, earns handsome revenues at
various stages as royalty, taxes, GDS, etc, and passes huge losses in
terms of foreign exchange, etc. on to the consumers. The Government
should bear all such costs and protect the gas consumers against the
projected increase in price. GoP should opt for some kind of hedging
mechanism to reduce the impact of exchange losses.
(viii) Increased interest charges are eroding the company’s profits. The
petitioner’s balance sheet also shows negative working capital due to the
increasing trend in the creditors and other liabilities. Government must,
therefore, introduce bearer certificates or some other means of raising
cash to reduce the borrowings as well as interest.
(ix) Increase in gas sales to CNG sector is unjustified. Customers of natural
gas should be ranked with respect to the value addition made by them
and provision of gas should be linked to it.
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(x) The provision for doubtful debts arises mainly in the case of domestic
consumers because of high incidence of non-payment and the fact that
the petitioner collects negligible security from them. The petitioner
should increase the security deposit in order to avoid high provision for
doubtful debts.
(xi) OGDCL has around 300 MMCFD additional gas supplies, which could
not be brought into the system owing to its various pending litigations
with GoP. The petitioner should act to resolve these issues in order to
make the additional gas available to its customers and avoid gas load
shedding.
(xii) The gas utilities or the exploration companies be directed to extract LPG
from other gas fields also, in order to promote LPG as an alternate fuel.
Further, the FG should exempt LPG from all levies i.e. tax, cess or any
duty on its import.
(xiii) HR cost of the petitioner is exorbitant due to over-employment, which
contributes towards increase in gas prices. The petitioner should not
pass such burden on the consumers.
(xiv) The FG should revisit the proposed size of IPI pipeline line keeping in
view the future gas demand and supply position. All efforts must be
undertaken to complete this project at the earliest, owing to widening
gas demand supply gap.
(xv) The participation of various stakeholders in the public hearings has
never been really up to its true potential and will decline unless the GoP
truly empowers the Authority to address the grievances of public at
large. Also, all trade bodies should be invited to attend the Authority’s
hearings.
(xvi) The petitioner should be directed to install meters outside the
consumer’s premises in order to reduce the chances of theft.
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(xvii) Complaints of low gas pressure have significantly increased, impacting
domestic bills through increased gas volumes. The accuracy of electronic
compensating devices used by the petitioner for measurement is also
doubtful.
(xviii) The petitioner is always short of spares, despite the fact that its balance
sheet reflects huge amount under “stock and spare” i.e. more than 3
times higher than the consumed spares. Despite this fact, the petitioner
is unable to install meters for more than 3 years in some cases.
b. CNG Industry Consumers - specific comments
(i) The line losses above the allowable limit of 5.5% are due to poor
distribution network, thefts and inefficiencies of the petitioner and the
same should, therefore, be borne by it.
(ii) Difference between sale price of CNG and petroleum products has
narrowed, resulting in severe crises to the CNG industry owing to lesser
sales.
(iii) It was ensured in the Memorandum of Understanding, signed between
All Pakistan CNG Association and Ministry of Petroleum & Natural
Resources (MP&NR) that gas tariff would be decreased in the coming
quarter as a consequence of decrease in international oil prices, however,
no implementation has so far been observed. Also, linkage of CNG price
with 50% of the petrol price must be followed, as earlier agreed by GoP.
(iv) Increase in gas tariff for CNG sector is unjustifiable, since it is widely
used by commercial vehicles owners and middle class, who cannot
offered expensive petroleum products. Moreover, the CNG sector
consumes 6% of total gas volume of the petitioner and contributes Rs. 32
billion per annum towards FG’s revenues in the form of taxes. CNG
sector has also reduced the trade deficit and improved the balance of
payment by substituting around 2.5 billion liters petrol.
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(v) Clause 6.6 of the Petroleum Policy, 1992 clearly stipulates the application
of industrial gas tariff to the CNG Industry. The policy was well adopted
till 2007, however, at present the CNG sector is being charged 25%
higher than the industrial gas tariff, which is unjustified for CNG
investors and general public as well.
(vi) Increase in CNG prices will adversely affect the masses since over 2.5
million vehicles have so far been converted to CNG, owing to more than
Rs. 200 billion investment made in this sector.
c. Industrial Consumers - specific comments
(i) Subsidy for use of gas as fertilizer feed-stock, at the cost of the industry,
should be abolished. GoP should give direct subsidy to domestic and
fertilizer consumers, through budget allocation, instead of the prevalent
cross-subsidy mechanism of gas pricing.
(ii) In the worst of times, the domestic sector enjoys priority for supply of
gas as well as substantial subsidy. This encourages excessive use at the
cost of industrial and commercial consumers. This is unwise and unjust.
Domestic tariff should be increased and stretched steeply to ensure
efficient and frugal use at all times and particularly in winter when
industries suffer supply crunch to accommodate increased domestic
load. The domestic consumers should also be made to use efficient
energy devices through all means available so that more gas volume is
available for the industrial sector, which is incurring huge losses due to
severe energy shortages.
(iii) Pakistan has failed to meet export targets this year and a major decline is
in the offing if further price increase is allowed. A number of SITE
industrial plots are either being used for warehousing or they have been
converted into retail markets, plazas etc. Some exporters are seriously
considering to follow suit.
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(iv) The wellhead pricing formula and petroleum policy must be
immediately reviewed to bring down the cost to bearable level. The
linkage of indigenous gas with international oil prices is irrational and
unjustified. Increase in oil prices is resulting in windfall gains for gas
exploration companies, as there is no increase in their cost structure and
the fields having been in production for quite some time. The annual
accounts of the gas exploration companies are showing phenomenal
growth in profits mainly due to lacunae in wellhead pricing formula.
The Authority must intervene in public interest, and reduce the
wellhead prices to provide relief to consumers at large.
(v) The policies / directives of GoP should be implemented only if the
related expenditure (capital and revenue) is provided by GoP itself
because economically unsound and unwise policies of GoP for political
expediency reasons are resulting in higher consumer prices and
unacceptably low shareholder returns.
(vi) There is a planned and proposed massive cut in gas sales for Karachi
region. Reduction in gas supplies to Fauji Fertilizer Bin Qasim and
Karachi Electric Supply Corporation will collapse the industry in
Karachi.
(vii) Gas sales to DHA desalination plant be reduced since it is going to the
benefit of the privileged few and the same be utilized in industrial
sector.
(viii) The petitioner’s request for tariff increase must be turned down, as it
will further ruin industries, which are already striving hard to remain in
business due to heavy cost of doing businesses. Furthermore, gas is a
natural resource and, therefore, should not be linked with dollar.
(ix) Gas tariff for industrial consumers is very high in Pakistan as compared
to neighboring countries, resulting in closure of textile units and exports,
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which accounts for 67% of the total export of the country. Any further
increase in gas sale prices will be the proverbial last straw on the camel’s
back.
(x) Tariff for consumption of gas in CNG sector should be fixed at the level
of highest slab of domestic consumer since it is being used by affluent
and well–to-do class only, while petrol prices which are, energy content-
wise more than double the CNG price, is used by the lower middle class
like motor cycle owners and transporters who provide services to
industry, business and common man. Slab-wise rate should also be
applied on commercial consumers, since the low income small
commercial consumers like barbers, tea stalls, etc, should not be treated
equivalent to bigger commercial consumers like hotels.
d. Shareholders - specific comments
(i) The Pak-Iran gas pipeline should be implemented through the
petitioner and SNGPL in order to remain cost effective, as the gross
return of SSGCL is only around Rs. 15 per MMBTU, which is the
lowest return paid to any gas transmission and distribution company
in the world. Also the cost of transmission is projected at Rs. 85 per
MMBTU for Interstate Gas Systems Limited (ISGSL), which is almost
15 times more than the current cost of the petitioner.
(ii) The expenditures pertaining to supply of gas to new towns and
villages provided in compliance of GoP directives, including
additional UFG due to network expansion, should be borne by the
GoP instead of gas consumers or shareholders. Section 13.1.2 of the
License requires the petitioner to give only technical and economical
connections. The gas supply, therefore, in the remote areas of Sindh &
Balochistan, per the GoP’ advice, should be immediately stopped,
otherwise, the Government / OGRA should provide compensation
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against such connections. Similarly, the expenses on account of
security, losses due to sabotage activities e.g leakages, damages, repair
& maintenance, insurance, etc should be picked by the GoP because
they accrue in consequence of GoP policies, and actions or lack of
action.
(iii) The petitioner had signed a lopsided agreement with Habibullah
Coastal Power Company (HCPC) without taking into account the legal
repercussions. Heavy expenditure is being incurred on its arbitration,
which is being done at Singapore. The shareholders have not been
taken on board in this matter. This clearly shows negligence on the
part of the petitioner for which the customers and shareholders should
not be penalized.
(iv) The petitioner was compelled to employ the Temporary Assignees
(TA) who were terminated earlier. The petitioner had to again induct
them, despite their lack of relevant knowledge / expertise for reasons
beyond their control. The recurring cost of these TA’s should,
therefore, be borne by GoP.
(v) The Government should fund the infrastructure projects of national
importance, such as Liquefied Natural Gas or ISGSL, through its
budgetary allocations instead of burdening the existing consumers.
The Government could easily utilize the funds available with
Government Holding (Pvt) Ltd. earned from mandatory shares in
producing fields.
(vi) At present the domestic consumers are being provided a discount of
about 70% on gas prices as against the cost of gas being paid by the
petitioner to gas producers. This situation is unlikely to continue in
view of the current depleting gas reserves of the country, since
provision of cheap gas to consumers is not possible unless a major new
discovery or additional gas from existing resources is available.
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5. AUTHORITY’S JURISDICTION, DETERMINATION PROCESS AND DISCUSSION ABOUT RELATED POINTS
5.1. The Authority examines, in depth, all applications and petitions in light of
relevant legal provisions. The instant petition has been filed under section 8(2)
of the Ordinance and not under Section 13 and Rule 16 of NGT Rules, 2002,
wherein it is stipulated that within 30 days of the final determination in the
proceedings by the Authority, a party may file a motion for review of such
final determination. The objection raised about the admissibility of the petition
is, therefore, misconceived. The petitions / applications are admitted for
consideration, only if they meet the pre-admission criteria laid in the NGT
Rules, 2002. In the process, public notices are issued and all the stakeholders
are provided full opportunity to intervene / comment upon the issues
pertaining to determination of revenue requirement, in writing and at public
hearings. The Authority gives full consideration to observations and
comments of all stakeholders while determining revenue requirement and
prescribed prices. As regards policy matters, since GoP is the legally
competent authority, the policy-related pleas, reservations and sentiments of
the stakeholders are brought to its specific attention for consideration before
deciding the retail prices for various categories of consumers.
5.2. The Authority, under the License Conditions of the license granted to the
petitioner, determines total revenue requirement of the licensee to ensure that
it operates prudently and achieves 17% return on its average net fixed assets in
operation for each financial year, subject to efficiency related benchmarks,
imposed from time to time. The Authority, may, however, in consultation
with GoP and the licensee prescribe revised rate of return or a different basis
for determination of a return, pursuant to License Condition No. 5.3 of the
license granted to the petitioner. The Authority has developed a new tariff
regime for regulated natural gas sector of Pakistan, which, in the course of
legally mandatory consultation process, is with GoP. Pending its finalization,
the Authority has decided to follow the existing basis of 17% return on the
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average net operating fixed assets, in accordance with the License Condition
No. 5.2.
5.3. The instant petition is primarily focused on review of cost of gas / WACOG
of the petitioner based on actual changes in the wellhead gas prices and
relevant factors. The wellhead gas prices for the said year are based on the
actual prices of crude oil and HSFO during the period December, 2008 to
September, 2009 and include the estimates for October and November, 2009.
The rising trend in recent months is to be taken into account, alongwith
declining prices in the previous months, while determining the WACOG to
ensure that the determination is rational and fair to all stakeholders.
5.4. The operating revenues, operating expenses and changes in asset base are
scrutinized by the Authority in depth. Appropriate benchmarks are set in
critical areas of operation to ensure that the cost of petitioner’s inefficiencies
and imprudence are not passed on to the consumers. Independent audits are
also conducted, wherever deemed necessary by the Authority. The operating
expenses of the licensee would have been much higher than what they are and
so would have been gas prices had there been no such control.
6. COST OF GAS
6.1. Petitioner’s Grounds for Review
6.1.1. The petitioner has submitted that as against Rs. 219.89 per MMBTU,
projected at the time of determination of ERR for the said year, the
WACOG is projected to increase to Rs. 238.71 per MMBTU on an
annualized basis, using the following parameters:
(i) Wellhead gas prices of various producing fields for the period July 1,
2009 to December 31, 2009, as already notified by the Authority.
(ii) The prices of crude oil / HSFO during the period June, 2009 to
November, 2009 to form the basis for computing wellhead prices for
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the period January 1, 2010 to June 30, 2010 in accordance with the
provisions of the existing GPAs between the producers and GoP.
(iii) Actual prices of crude oil and HSFO for the period June, 2009 to
September, 2009 and at assumed price of US $ 72.19 per barrel and
US$ 423.33 per metric ton respectively for October and November,
2009.
(iv) US $ exchange rate assumed at Rs. 85 w.e.f January 01, 2010 for
calculation of wellhead gas prices for the period January – June, 2010.
However, US $ exchange rate for monthly invoicing to the gas
producers assumed at an average rate of Rs. 84.71 for the said year.
6.1.2. On the basis of the above parameters, the petitioner has estimated
average C & F prices of crude oil and HSFO for June-November, 2009 at
US $ 71.04 per barrel and US $ 418.07 per ton respectively, and has used
them for computation of wellhead prices for January - June 2010.
6.1.3. Qadirpur wellhead price has been assumed at US $ 2.5618 per MMBTU
(conversion per applicable exchange rate), in accordance with the
existing GPA, having maximum HSFO ceiling of US$ 200 per metric ton.
Based on the said price, it has also claimed arrears amounting to Rs.
4,663 million for the period January, 2008 to June, 2009 on account of
retrospective adjustment pertaining to exchange rate fluctuations for the
respective periods.
6.2. Discussion & Decision
6.2.1. The Authority observes that the wellhead prices of gas for all fields in
Pakistan are computed in accordance with GPAs, available on record,
and are notified in exercise of the powers vested in it under the
Ordinance.
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6.2.2. The Authority observes that Qadirpur wellhead price has not been
notified since January, 2008 as settlement of new schedule of discounts
between the producer and GoP is still pending. It has, however, been
brought to the attention of the Authority that the issue is likely to be
finalized shortly. Keeping in view the financial impact of the Qadirpur
wellhead price, the Authority had again referred the said matter to the
MP&NR for its advice. MP&NR has finally advised to allow exchange
rate differential for all the previous and forthcoming periods, whether or
not the provisional discount table is amended.
6.2.3. The Authority, in view of above advice, accepts the petitioner’s
assumptions in respect of Qadirpur field and provisionally allows the
same as part of WACOG for the said year.
6.2.4. The Authority notes that average prices of crude oil and HSFO have
gone up as under:
Table 2: Comparative Analysis of Average Prices of Crude oil & HSFO
Period from
S. No. Particular Dec 08 – May 091 Jun 09 – Nov 092
%age increase
i Crude Oil ( US $ per BBL) 48.26 71.04 47% ii HSFO (US $ per ton) 296.27 418.07 41%
1 Basis of wellhead prices for July-December 2009 2 Basis of wellhead prices for January-June 2010
6.2.5. The Authority finds that, on the basis of currently available information,
the revised projections of sale and purchase volume, and computation of
cost of gas submitted by the petitioner are reasonable.
6.2.6. In view of above, the Authority accepts the same and provisionally fixes
WACOG at Rs. 238.71 per MMBTU as claimed by the petitioner for the
said year.
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7. OTHER OPERATING INCOME
7.1. Petitioner’s Grounds for Review
7.1.1. The petitioner has stated that it has increased the estimated gas
transportation income, sale of gas condensate and royalty &
transportation income from JJVL for the said year by Rs. 404 million on
the basis of increased US $ / rupee parity and actual sale and purchase
volumes for part of the year. The breakup of revised other operating
income in comparison with DERR has been provided as under:
Table 3: Comparative Analysis of Other Operating Income with DERR
Rs. In Million
Description DERR The Petition IncreaseMeter rentals 586 586 - Late payment surcharge 575 575 - Amortizartion of deffered credit 401 401 - Sales of gas condensate 263 313 50 Meter manufacturing profit 127 127 - Gas trasporation charges 563 568 5 Transportation Income from JJVL 2,508 2,792 284 Royalty income from JJVL 1,865 1,930 65 Return on Govt. grants 223 223 - Other Income 201 201 - Total Other Income 7,312 7,716 404
7.2. Discussion & Decision
7.2.1. The petitioner has filed this petition under Section 8(2) of the Ordinance
which requires review of the revenue requirement after incorporating
the actual changes in the wellhead prices, as notified by the Authority
and other relevant factors. The relevant factors, in this context, include
actual sale and purchase volumes, latest trend of international crude oil
and HSFO prices and US $ exchange rate.
7.2.2. In view of above, the Authority accepts the same and provisionally
determines it at Rs. 7,716 million as claimed by the petitioner.
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8. DIFFERENCE IN OPENING & CLOSING BALANCE OF NET OPERATING FIXED ASSETS
8.1. The petitioner has not adopted the opening and closing balance of net
operating fixed assets as determined by the Authority in ERR for the said year.
The Authority observes that, as a consequential impact of the said difference,
the amount of required return has been overstated by Rs. 1 million.
8.2. The Authority, however, corrects the same and provisionally determines the
required return at Rs. 6,575 million for the said year.
9. UFG ADJUSTMENT
9.1. The Authority, while determining the ERR for the said year, had fixed the
UFG upper & lower targets at 5.50% & 4.50% respectively, with the condition
that the petitioner would (i) retain the savings in the event of performance
being better than the lower target, (ii) fully bear the loss for UFG above the
upper target from its own profits, and (iii) absorb 50% of the loss on account of
UFG between the lower and upper target in the event of final UFG percentage
being within these two limits, while the remaining 50% would be adjusted in
the revenue requirement.
9.2. The petitioner has projected UFG at 6.33% for the said year. The Authority
observes that according to the benchmark, 100% UFG above 5.50% (upper
target) and 50% UFG between 5.50% and 4.50% (lower target) should not be
made part of revenue requirement and therefore provisionally deducts
Rs. 1,342 million from the revenue requirement of the petitioner.
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10. DETERMINATION
10.1. The Authority, after taking into consideration the points raised by the
interveners, the clarifications provided by the petitioner, scrutiny of the
petition and available record, provisionally determines the shortfall in the
estimated revenue requirement for the said year at Rs. 11,605 million
(Annexure-I) for the said year.
10.2. The Authority, keeping in view the request of the petitioner narrated in para
2.2 above, decides that the shortfall to the extent of Rs. 3,885 million be
adjusted by increasing the average prescribed price by Rs. 20.06 per MMBTU
w.e.f July 01, 2009, translating into an increase of 9.07% for all categories of
consumers except domestic, special commercial and fertilizer feedstock. This
will, however, not entail adjustment in consumer prices, since the same
cannot be changed on retrospective basis.
10.3. The Authority further decides to adjust the remaining shortfall amounting to
Rs. 7,720 million by increasing the average prescribed price by Rs. 38.06 per
MMBTU w.e.f January 01, 2010, translating into an increase of 4.84% for
various categories of consumers, excluding domestic, special commercial,
CNG, Independent Power Producers (IPP), and fertilizer feed-stock. The
prescribed prices of CNG and IPP’s have been equated with their existing sale
prices. The price for feed-stock gas supply to the fertilizer consumer has been
determined in accordance with GoP policy. Increase in the prescribed prices in
case of domestic and special commercial consumers has been kept at 18%, to
equate the same with Sui Northern Gas Pipelines Limited.
10.4. The revised provisional prescribed prices w.e.f January 01, 2010 are subject to
the condition that these “may be re-adjusted upon receipt of GoP advice under
Section 8 (3) of the Ordinance in respect of the sale price of gas for each category of
Review of Estimated Revenue Requirement of SSGCL Financial Year 2009-10 Under Section 8(2) of the OGRA Ordinance, 2002 ____________________________________________________________________________
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retail consumers provided that the overall increase in the average prescribed price
remains unchanged so that the petitioner is able to achieve its total revenue
requirements in accordance with Section 8 (6) (f) of the Ordinance.”
10.5. Under Section 8 (3) of the Ordinance, the GoP is required to advise the
Authority, within 40 days of advice from the Authority of revision of
prescribed prices, the minimum charges and the sale price for each category
of retail consumers, for notification in the Official Gazette by the Authority.
Further, under Section 8 (4) of the Ordinance, if the GoP fails to so advise
within the said 40 days and the prescribed price for any category of retail
consumers determined by the Authority is higher than the most recently
notified sale price for that category of retail consumers, the Authority shall
notify in the Official Gazette the prescribed price as determined by the
Authority to be the sale price for the said category of retail consumers. In
such an unlikely and undesirable eventuality, all the categories, except
fertilizer feed-stock, will be affected. That will also result in different retail
prices being charged by the petitioner and SNGPL for some categories of
retail consumers violating the prevalent GoP policy of maintaining uniform
prices for retail consumers throughout Pakistan.
10.6. In view of above legal position, the GoP may take necessary action under
Section 8 (3) of the Ordinance and advise the Authority latest by December
29, 2009, the revised sale price for each category of retail consumers of
natural gas for notification in the Official Gazette, to be effective from
January 01, 2010.
11. PUBLIC CRITIQUE, VIEWS, CONCERNS, SUGGESTIONS
11.1. The Authority has recorded concerns of the interveners and participants in
para 4 above, which include matters relating to policy and do not fall under
Review of Estimated Revenue Requirement of SSGCL Financial Year 2009-10 Under Section 8(2) of the OGRA Ordinance, 2002 ____________________________________________________________________________
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the purview of the Authority but affect the consumers. Specific attention of the
GoP is drawn to these issues for consideration and necessary action.
Dr. M. Ilyas Fazil Member (Oil)
Mir Kamal Marri Member (Finance)
Syed Hadi Hasnain Member (Gas)
Tauqir Sadiq Chairman
Islamabad, November 19, 2009.
Review of Estimated Revenue Requirement of SSGCL Financial Year 2009-10 Annexure-I Under Section 8(2) of the OGRA Ordinance, 2002 ____________________________________________________________________________
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I. Computation of Estimated Revenue Requirement for FY 2009-10 Rs. in Million
Gas sales volume -MMCF 417,005 417,005
BBTU 390,727 390,727
July - December 2009 187,887 187,887
January - June 2010 202,840 202,840
"A" Net Operating Revenues -
Net sales at current prescribed price 101,254 101,254
Meter rentals 586 - 586
Late payment surcharge 575 - 575
Amortization of deferred credit 401 - 401
Sale of gas condensate 313 - 313
Meter manufacturing profit 127 - 127
Gas transportation charges 568 - 568
Revenue from JJVL 2,792 - 2,792
Royalty income from JJVL 1,930 - 1,930
Return on Govt. grants 223 - 223
Other operating income 201 - 201
Total Operating Revenue "A" 108,970 - 108,970
"B" Less: Operating Expenses -
Cost of gas 102,432 - 102,432
UFG Adjustment (1,342) - (1,342)
Transmission and distribution cost 5,740 - 5,740
Gas internally consumed 148 - 148
Depreciation 3,042 - 3,042
Other charges including (W.P.P.F) 89 - 89
Pior year adjustmenton account of HCPC (91) - (91)
-
Total Operating Expenses "B" 110,018 - 110,018
"C" Operating profit (A-B) (1,048) - (1,048)
-
Return required on net operating fixed assets: -
Net operating fixed assets at beginning 36,866 (201) 36,665
Net operating fixed assets at ending 40,501 192 40,693
77,367 (9) 77,358
Average net assets (I) 38,683 (4) 38,679
"E" 17% return required 6,576 (1) 6,575
7,624 (1) 7,623
"G" Additional revenue requirement for Air-Mix LPG Project 97 97
"H" Total Shortfall (F+G) 7,721 (1) 7,720
"I" Shortfall of FY 2008-09 (H) 3,885 3,885
Total Shortfall (H+I) 11,606 (1) 11,605
Increase in average prescribed price w.e.f July 01, 2009 20.68 - 20.68
Increase in average prescribed price w.e.f Jan 01, 2010 38.06 0 38.06
"F" Shortfall in return required (C-E) (Gas Operations)
The Petition Adjusment Particulars Determined
by OGRA
Review of Estimated Revenue Requirement of SSGCL Financial Year 2009-10 Annexure-II Under Section 8(2) of the OGRA Ordinance, 2002 ____________________________________________________________________________
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II. Provisional Prescribed Prices for FY 2009-10
Existing
Prescribed
Prices w.e.f.
01.07.2009
Revised
Prescribed
Prices w.e.f.
01.07.2009
Revised
Prescribed
Prices w.e.f.
01.01.2010
CATEGORY
(i) Domestic Consumers
a) Standalone meters:
(a) Upto 200 M3 per month
(i)����������� 80.65 80.65 95.01
(ii)���������� 84.45 84.45 99.48
(iii)��������� 153.73 153.73 181.10
(b) Over 200 M3 – upto 300 M3 per month
(i)����������� 84.45 84.45 99.48
(ii)���������� 153.73 153.73 181.10
(iii)��������� 325.48 325.48 383.42
(c) Over 300 M3 – upto 400 M3 per month
(i)�������� 153.73 153.73 181.10
(ii)������� 325.48 325.48 383.42
(iii)������ 423.42 423.42 498.80
(d) Over 400 M3 – upto 500 M3 per month
(i)�������� 325.48 325.48 383.42
(ii)������� 423.42 423.42 498.80
(iii)������ 550.44 550.44 648.43
(e) Over 500 M3 per month
(i)�������� 423.42 423.42 498.80
(ii)������� 550.44 550.44 648.43
(iii)������ 730.17 730.17 860.15
b) Bulk Meters:
(a) Upto 200 M3 per month
(i)����������� 80.65 80.65 95.01
(ii)���������� 84.45 84.45 99.48
(iii)��������� 153.73 153.73 181.10
(b) Over 200 M3 per month
325.48 325.48 383.42
(ii) Commercial Consumers
All off-takes at flat rate of 349.46 381.15 399.61
All off takes at flat rate of
Mosques, churches, temples, madrassas, other religious places and hostels attached thereto, Government and
semi-Government offices, hospitals, Government guest houses, Armed Forces messes, langars, universities,
colleges, schools, private educational institutions, orphanages and other charitable institutions alongwith
hostels and residential colonies to whom gas is supplied through bulk meters.
Over 400 – upto 500 M3 per month
All over 500 M3 per month
0 – 50 M3 per month
Over 50 – upto 100 M3 per month
Over 300 – upto 400 M3 per month
Over 400 – upto 500 M3 per month
0 – 400 M3 per month
Over 100 – upto 200 M3 per month
0 – 200 M3 per month
Over 200 – upto 300 M3 per month
Over 300 – upto 400 M3 per month
0 – 300 M3 per month
Over 100 – upto 200 M3 per month
0 – 100 M3 per month
Over 100 – upto 200 M3 per month
Over 200 – upto 300 M3 per month
All establishments registered as commercial units with local authorities or dealing in consumer items for direct
commercial sale like cafes, bakeries, milk shops, tea stalls, canteens, barber shops, laundries, places of
entertainment like cinemas, clubs, theatres and private offices, clinics, maternity homes, etc.
Rs. per MMBTU
0 – 50 M3 per month
Over 50 – upto 100 M3 per month
Review of Estimated Revenue Requirement of SSGCL Financial Year 2009-10 Under Section 8(2) of the OGRA Ordinance, 2002
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(iii) Special Commercial (Roti Tandoors)
(a) Upto 200 M3 per month
(i)����������� 80.65 80.65 95.01
(ii)���������� 84.45 84.45 99.48
(iii)��������� 153.73 153.73 181.10
(b) Over 200 M3 – upto 300 M3 per month
(i)����������� 84.45 84.45 99.48
(ii)���������� 153.73 153.73 181.10
(iii)��������� 325.48 325.48 383.42
(b) Over 300 M3 per month
349.46 381.15 399.61
(iv) Ice Factories
All off-takes at flat rate of 349.46 381.15 399.61
(v) Industrial Consumers
All off-takes at flat rate of 288.13 314.26 329.48
(vi) Captive Power
All off-takes at flat rate of 288.13 314.26 329.48
(vii) Compressed Natural Gas (CNG)
All off-takes at flat rate of 360.71 393.42 427.15
(viii) Cement
All off-takes at flat rate of 404.20 440.86 462.21
(ix) Pakistan Steel
All off-takes at flat rate of 288.13 314.26 329.48
(x) Fauji Fertilizer Bin Qasim Ltd.
(i) For gas used as feed-stock for Fertilizer (upto 60MMCFD) 102.01 102.01 102.01
(ii) 56.70 56.70 56.70
(iii)
288.13 314.26 329.48
(xi) Power Stations
All off-takes at flat rate of 296.73 323.64 339.31
(xii) Independent Power Producers
All off-takes at flat rate of 242.98 265.02 281.88
Over 100 – upto 200 M3 per month
Over 200 – upto 300 M3 per month
All off takes at flat rate of
0 – 50 M3 per month
Over 50 – upto 100 M3 per month
Over 100 – upto 200 M3 per month
0 – 100 M3 per month
For gas used as fuel for generating steam and electricity
and for usage in housing colonies for fertilizer factories.
All consumers engaged in the processing of industrial raw material into value added finished products
irrespective of the volume of gas consumed including hotel industry but excluding such industries for which a
separate rate has been prescribed.
Additional allocation (10 MMCFD) Provisional