The ministry of petroleum and the Oil and Gas Regulatory Authority (Ogra) are at loggerheads over recovery of Rs11 billion on account of pilfered gas in Khyber Pakhtunkhwa and Balochistan from honest consumers of Punjab and Sindh.

The petroleum ministry is worried over the Ogra’s stance of burdening 6.5 million existing consumers with Rs40 million worth of gas theft or non-recovery from conflict-hit regions of Khyber Pakhtunkhwa and Balochistan, in addition to 4.5 per cent unaccounted for gas loss.It wants the regulator to pass on the loss of Rs11 billion in those areas to the consumers when next price review becomes due on July 1.

In a letter, Prime Minister’s Adviser on Petroleum and Natural Resources Dr Asim Hussain has taken the Ogra to task for what he claimed “violation of section 21 of the Ogra ordinance” under which the ministry wants to pass on in the tariff Rs11 billion worth of gas lost in the violence-hit areas.

The Ogra, which has faced judicial scrutiny only recently, believes that it is not bound to implement the petroleum ministry’s guidelines under section 21 if these were inconsistent with the Ogra ordinance that required recovery of only prudent costs from consumers.

At the heart of the problem is a decision taken by the federal cabinet in October that allowed recovery of gas losses in violence-hit areas from the consumers but asked the two institutions to sit together and set a benchmark for such losses.

The petroleum ministry believes that the cabinet has approved a benchmark of Rs11bn for financial year 2011-12 which should be implemented by the regulator. The Ogra, on the other hand, believes that until fresh benchmarks are set it cannot pass on Rs40m in gas theft to the consumers.

An Ogra official said that at best the gas theft in Khyber Pakhtunkhwa and Balochistan beyond the Rs40m mark should be passed on to the consumers in the two provinces. If the federal government deemed it fit, it should provide subsidy for that amount instead of subjecting the honest consumers across the country (particularly in Sindh and Punjab) to the additional burden of Rs11bn because they had nothing to do with the security situation in the two provinces.

Sources said the ministry and the Ogra failed to agree on the benchmarks even after more than three meetings on the matter. As a result, Dr Hussain was reported to have warned the regulator that he would take the case of ‘Ogra’s resistance’ to the federal cabinet again. In fact, he was said to have prepared a summary for the cabinet.

Meanwhile, because of the dispute the two gas utilities — the Sui Northern Gas Pipelines Ltd (SNGP) and Sui Southern Gas Company (SSGC), have failed to comply with the requirement of the Securities and Exchange Commission of Pakistan of declaring their annual accounts in September. The two extensions granted by the regulator have since expired.

The two utilities are currently implementing a Rs52bn World Bank programme aimed at reducing gas losses. The bank sees no reason why the country should not be able to achieve the international standards for unaccounted for gas (UFG) of 1-2 per cent.
The UFG losses in the SNGP and SSGC range between 8.5 and 10 per cent or about 300 MMCFD.

The regulator insisted that it could not penalise the consumers for the government’s policy of providing gas to more and more villages and its failure to improve the security situation. It wanted the utilities to improve their systems and punish the thieves.

The ministry claimed that due to the nature of their involved and long distribution networks a certain percentage of gas was bound to be lost because of several factors, some of which were beyond the control of the companies. The regulator had gradually reduced UFG allowance for gas companies to about 4.5 per cent.

The federal cabinet decided in October to issue directives to the Ogra under Section 21 of the Ogra ordinance to treat volumes pilfered by non-consumers but detected and determined by the companies, and volumes consumed in conflict-affected areas as ‘deemed gas sales’.

The ministry conceded that gas pilferage by non-consumers was increasing while expanding the network because of government’s socio-political agenda was also increasing system losses. The theft cases identified by gas companies hindered recovery of lost money owing to legal complications.

It, however, claimed that the gas utilities were also confronted with law and order situation in certain areas which practically made it impossible to carry out their normal operations but they had to continue gas supply due to socio-political considerations. Reading of meters in such areas was almost impossible.