OGRA increases UFG to 7pc, passes Rs 25b tax on to gas consumers

The Oil and Gas Regulatory Authority (OGRA) has passed on a massive Rs 25 billion in tax on to the legitimate gas consumers by increasing the UFG (unaccounted for gas) volume in the gas tariff by 2.5 per cent to 7 per cent from the existing 4.5 per cent in its determinations about final revenue requirement of gas companies – Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipeline Ltd. (SNGPL) ­ for financial years 2012-13 and 2013-14.

The 2.5 per cent growth in the UFG will expose the end gas consumers to further financial burden of Rs 25 billion and to this effect the consumers will start receiving the inflated bills from January 2016.

OGRA finalised the determinations on November 5-6, 2015 about the final revenue requirement (FRR) of SSGC and SNGPL for both financial years 2012-13 and 2013-14 with the decision allowing the gas companies to charge one per cent from the gas consumers for failure in collecting the gas bills in areas where law and order situation has deteriorated.

In addition, the Authority has also allowed the gas utilities to charge 1.5 per cent more from the gas consumers under the head, non-gas consumers. The non-gas consumers are those elements that are using the gas with no meters installed at their businesses or workplaces and the numbers are huge. The determinations do not mention that the UFG has been increased, but at the same time they reveal that the Authority has allowed the gas utilities to increase by one per cent the gas tariff under the head of non-recovery of gas bills because of law and order situation and 1.5 per cent in the tariff in the wake of the gas being stolen by non-gas consumers.

When contacted, OGRA Chairman Saeed Ahmad Khan confirmed that the Authority had allowed the gas utilities to charge end consumers for the losses the companies were facing because of deteriorating law and order situation in some areas of Balochistan. Likewise Kark and Kohat in KP are areas where massive gas theft is being reported and are inaccessible because of ongoing military operations against terrorism.

He admitted that the Authority had also permitted the gas companies to charge the end gas consumers for the failure in recovery of bills because of non-gas consumers. Khan, however, said he was unable at the time to tell how much losses in terms of percentage the gas companies would charge from the consumers.

He insisted that UFG was still at 4.5 per cent and it had not been increased. When asked why OGRA had not placed the said determinations on official website, he said that Authority had sent it to the government for review and after that it would be placed on the official website.

Federal Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi responded saying he had not yet seen the determinations with regard to final revenue requirements of gas utilities for 2012-13 and 2013-14 sent by OGRA. However, the minister said that the issue pertaining to losses was now becoming irrelevant as the gas sale volume was being decreased, owing to which the losses volume in percentage had increased.

However, the officials at OGRA believed that the regulator had skillfully increased the UFG without naming it by two and half per cent inflicting a loss of Rs 25 billion to the end gas consumers. “The UFG for 2012-13 has increased from 4.5 per cent to 6.75 per cent and for 2013-14 it swelled to 7.25 per cent from 4.5 per cent.”

In November 2014, the government sent a policy to OGRA asking the Authority to accommodate the loss making companies in such a way that the LHC verdict about UFG was not violated and the ongoing accountability case of former OGRA Chairman Tauqir Sadiq is also not affected.

In line with the direction of the Ministry of Petroleum and Natural Resources, the regulator was asked to increase the tariff because of losses the companies were sustaining in the wake of gas theft. The directive accounted for gas theft due to four reasons including bulk retail gas consumption, non-gas consumers, law and order situation and low billing. The officials said that the said four reasons were already accommodated in the 4.5 per cent UFG that had already been allowed. The new increase in UFG by 2.5 per cent (1 per cent because of law and order situation and 1.5 per cent due to non-gas consumers) in the final revenue requirement of both gas companies is illegal as under the OGRA Ordinance, the Authority cannot increase the UFG in final revenue requirement.

However, it can increase the UFG benchmark in the estimated revenue requirement. The said decision will trigger another controversy which may, later on, emerge as a scam. Tauqir Sadiq is already facing the accountability court in a case that involved increasing the UFG to 7 per cent from 5 per cent.

Meanwhile, share value of both companies which are virtually on the verge of economic collapse has started showing consistent improvement as if the said information of increasing UFG in the tariff had secretly been leaked to some stakeholders of the gas companies. The shares of SNGPL on November 23 traded at Rs 31.45 and of SSGC at Rs 42. OGRA had earlier set the UFG benchmark at 6 per cent in 2005-06 after hectic consultations with concerned foreign firms and local state owned gas companies with the decision that the said UFG would be reduced to 5 per cent in 2009-10.

The UFG benchmark was first deviated from by former OGRA chairman Tauqir Sadiq in 2009-10. Now, it is being breached by OGRA in 2015 in deciding the final revenue requirements of the two gas companies for financial year 2012-13 and 2013-14.