IN THE MATTER OF SUI SOUTHERN GAS COMPANY LIMITED …bk.ogra.org.pk/images/data/downloads/1263387418.pdfcompany, incorporated in Pakistan, and listed on the Karachi, Lahore and Islamabad

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 ____________________________________________________________________________

ii

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


- 20 -

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


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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:


(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














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



Review of Estimated Revenue Requirement of SSGCL Financial Year 2009-10 Under Section 8(2) of the OGRA Ordinance, 2002

- 24 -

(iii) Special Commercial (Roti Tandoors)


(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


(v) Industrial Consumers


(vi) Captive Power


(vii) Compressed Natural Gas (CNG)


(viii) Cement


(ix) Pakistan Steel


(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


(xii) Independent Power Producers




All off takes at flat rate of





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

Documents

IN THE MATTER OF SUI SOUTHERN GAS COMPANY LIMITED …bk.ogra.org.pk/images/data/downloads/1263387418.pdfcompany, incorporated in Pakistan, and listed on the Karachi, Lahore and Islamabad