ECC to allow Ogra to include IPI pipeline expenses in gas bills

[Naveed Yaseen]

M GHUMMAN
ISLAMABAD (August 26 2008): The Economic Co-ordination Committee (ECC) of the Cabinet which is scheduled to meet here on Tuesday, will allow the Oil and Gas Regulatory Authority (Ogra) to include the expenses of the Iran-Pakistan-India (IPI) pipeline in the bills of gas consumers, sources in Petroleum Ministry told Business Recorder.

This inclusion in the gas bills is premature considering that the US geopolitical interests in the region have to-date militated against the IPI agreement being finalised - US pressure on Pakistan in particular is unlikely to abate in the coming years.

"The ultimate benefit of developing gas import project will go to the consumers through the Sui companies. So, revenue expenditure on their development should also be borne by them," Petroleum Ministry argued in its summary.

The Inter-State Gas Systems (Pvt) Ltd (ISGS) was established in 1996 as a private limited joint venture company of Sui Southern Gas Company Limited (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL). ISGS is responsible for developing cross-border pipelines projects for import of natural gas, and is currently working on the Iran-Pakistan-India (IPI), Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipelines, and Underground Gas Storage (UGS) projects. The ECC, in its meeting in January 2008 had considered the recommendations of the Ministry of Petroleum & Natural Resources, and had decided as follows:

(a) The Gas Sale and Purchase Agreement ('GSPA'), as initialled on December 18, 2007, be signed by Inter State Gas System (ISGS) of Pakistan for execution of the Iran-Pakistan-India (IPI) gas pipeline project;

(b) Issuance of the GoP guarantee in accordance with Gas Sale Purchase Agreement (GSPA);

© ISGS to enter into back to back agreements with SNGPL and SSGC for the resale of imported gas on terms similar to those contained in the Iranian GSPA; and

(d) Implementation of the IPI project be accelerated as early as possible.

Sources said tat ISGS operating costs are being reimbursed by its existing shareholders SSGC (51 percent) and SNGPL (49 percent) under a services agreement. This expenditure is being included by the Sui companies as operating costs in their revenue expenditure and passed on to gas consumers as part of consumer tariff, which was approved by Ogra.

In its determination on May 20, 2008 Ogra, however, disallowed the inclusion of ISGS operating expenditure for 2008-09 in the revenue requirements of the Sui companies and also adjusted the amounts allowed to them in the previous years. Extract of Ogra determination is reproduced as under:

"The Authority, in the circumstances is constrained not to include expenditure of Rs 699 million on account of ISGS in the consumer price. The Authority also adjusts the amount provisionally allowed earlier of Rs 248 million against the petitioner's revenue requirement for the said year. This decision may, however, be amended in the event of receiving policy guidelines under section 21 of the Ordinance.

Under section 21 and section 2(xxvi) of the Ogra Ordinance 2002 the Federal Government may, as and when it considers necessary, issue policy guidelines to Ogra. Such policy guidelines should be approved either by the federal cabinet or any committee thereof.

Petroleum Ministry is of the view that ultimate benefit of developing gas import projects shall go to the gas consumers, through the Sui companies. Accordingly, the revenue expenditure on their development should also be borne by them. The alternative source of funding such development expenditure is through the federal budget which in turn means taxation on the general public. It is not equitable to load the tax payers in general with this cost, many of whom are neither the current, nor the potential users of natural gas.

The IPI steering committee/subcommittee of the ECC in its meeting on July 15, 2008 had recommended that revenue expenditure of ISGS may continue to be included in the operating costs of SSGC and SNGPL respectively, in the ratio of their current shareholding 51:49, to be recovered from gas consumers in the form of consumer gas tariff. Therefore, policy guidelines need to be issued to Ogra under section 21 of Ogra Ordinance 2002.

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