“ROLE OF OIL AND GAS REGULATORY AUTHORITY (OGRA)” BY AHSAN MAQBOOL EXECUTIVE DIRECTOR (P&C)

“ROLE OF OIL AND GAS REGULATORY AUTHORITY (OGRA)” BY AHSAN MAQBOOL EXECUTIVE DIRECTOR (P&C) Workshop on Universal Service Obligation,15 Jul’ 07 Taj Ambassador, New Delhi, India

CONTENTS • Petroleum Sector Regulations • Profile of the Authority • Powers and Functions • Legal Framework • Licences Granted • Tariff Mechanism • Tariff Structure • Petroleum Products Prices • LPG Prices • Redressal of Complaints • Way Forward Oil & Gas Regulatory Authority, Pakistan

PETROLEUM SECTOR REGULATIONS • Establishment of Natural Gas Regulatory Authority (NGRA) in 2000 to regulate natural gas pipelines, transmission, distribution and sales thereof • Establishment of Oil & Gas Regulatory Authority (OGRA) in 2002 to regulate midstream and downstream oil and gas sector. NGRA subsumed in OGRA • The Authority is independent in the performance of its functions and has exclusive powers to deal with the matters assigned in the Ordinance • Government may issue policy guidelines not inconsistent with the Ordinance and the Authority is obligated to comply with such policy guidelines Oil & Gas Regulatory Authority, Pakistan

PROFILE OF THE AUTHORITY • OGRA of following members appointed by the Federal Government through an open competitive process as under: • Mr. Munir Ahmad, Chairman • Mr. Rashid Farooq, Member (Oil) • Mr. M. H. Asif, Member (Finance) • Member (Gas), Vacant (since 20.12.2006) • Staff Strength: 175 ( 84 executives and 91 support staff) • OGRA regulates 79% of the energy sector • Objectives:- • Foster competition • Increase private investment and ownership in the midstream and downstream petroleum industry • Protect the public interest while respecting individual rights • Provide effective and efficient regulation Oil & Gas Regulatory Authority, Pakistan

POWERS & FUNCTIONS - Main functions of the Authority are: • Grant of licences for regulated activities namely: • Natural Gas Pipelines, transmission, distribution, sale and storage (ii) CNG, LPG and LNG Installations, production, storage, transportation and marketing (iii) Oil Pipelines, refineries, storages, lube oil blending plants and marketing of petroleum products Oil & Gas Regulatory Authority, Pakistan

POWERS & FUNCTIONS • Determination of revenue requirement and prescribed prices of natural gas utilities : notification of prescribed and consumers’ sale prices • Determination & notification of consumers’ prices of petroleum products in consultation with the Federal Government • Enforcement of standards and specifications for refined oil products as notified by the Federal Government • Enforcement of technical standards (best international practices) in all the regulated activities • Resolution of public complaints and disputes against licensees and disputes between licensees Oil & Gas Regulatory Authority, Pakistan

LEGAL FRAMEWORK • Established comprehensive legal framework through notification of various licencing rules, natural gas tariff rules, complaints resolution procedure regulations, performance & service standards of gas companies • Work on formulation of various rules/regulations i.e. LNG Rules, Gas Theft Rules, Promotion of Fair Competition Rules, Enforcement Rules, Revised CNG Rules, Revised LPG Rules and Performance & Service Standards for oil activities in progress Oil & Gas Regulatory Authority, Pakistan

LICENCES GRANTED Oil & Gas Regulatory Authority, Pakistan

TARIFF MECHANISM • Gas utilities are entitled to fixed rate of return (SNGPL 17.5% and SSGCL 17%) on operating assets (ROA) before tax and financial charges • Prudent, cost effective and economically efficient capital expenditure is allowed in the asset base for rate of return purposes • Prudent operating and maintenance costs are accepted in the determination of revenue requirement • Incentives for efficiency • UFG / Line Losses Benchmarks (entire saving kept by Utility) • Human Resource (HR) Cost Benchmark (Equal sharing of savings) Oil & Gas Regulatory Authority, Pakistan

TARIFF MECHANISM • The process is transparent and ensures effective participation of consumers and general public Admission of Petition Public Notice Public Comments / Interventions Public Hearing Final Scrutiny Authority’s Decision Federal Government Advice Notification of Gas Prices Oil & Gas Regulatory Authority, Pakistan

TARIFF MECHANISM EFFICIENCY INCENTIVES FOR GAS COMPANIES UFG / Line Losses Benchmarks Recurring Saving Rs.2.5 billion / annum * Benchmark set by OGRA Oil & Gas Regulatory Authority, Pakistan

TARIFF MECHANISM EFFICIENCY INCENTIVES FOR GAS COMPANIES Human Resource (HR) Cost Benchmarks • Actual HR cost for FY 2004-05 used as base year and indexed in subsequent years on the following basis: • 50% of notified consumer price index • 60% of incremental number of gas consumers • 20% of incremental transmission & distribution network • 20% of the incremental sales volume • Sharing of Savings or Excess in: a) UFG: Entirely by gas companies b) HRCost: Equally between gas companies and consumers Oil & Gas Regulatory Authority, Pakistan

TARIFF STRUCTURE SUI NORTHERN GAS PIPELINES LIMITED Rs./MMBTU Oil & Gas Regulatory Authority, Pakistan

TARIFF STRUCTURE (FY 2007-08) Oil & Gas Regulatory Authority, Pakistan

PETROLEUM PRODUCTS’ PRICES • Determination & notification of petroleum products prices transferred to OGRA from OCAC w.e.f. 01-04-2006 • Specificpolicy guidelines approved by the Cabinet in March, 2006 for computation of prices are as follows: - Ex-refinery Price based on Import Parity Price + Excise Duty + Petroleum Development Levy (PDL) & Inland Freight Equalization Margin (IFEM) - Marketing Companies’ margin (3.5%) & Dealers’ commission (4.0%) added - GST @ 15% added to arrive at the Ex-Depot Sale Price of MS, HOBC, Kerosene Oil and LDO • Price of HSD which is the major product is notified by OMCs on the basis of weighted average cost of local and imported supplies Oil & Gas Regulatory Authority, Pakistan

TARIFF STRUCTURE(w.e.f. 01-05-2007) *HSD is based on PSO’s price *Custom duty on HSD is Rs. 3.14 per litre Oil & Gas Regulatory Authority, Pakistan

LPG PRODUCERS’ PRICES • Under the Federal Government’s policy, prices of local LPG producers are fixed on the basis of FOB prices of LPG in the Middle East’s market for each month • LPG consumers’ prices are de-regulated, however, OGRA is authorized to intervene in the event of a cartelization / unreasonable prices. The reasonable price to be fixed by OGRA is based on: • Import parity price of LPG; • The local producers’ price; • Reasonable profit margin of LPG companies based on their last 2 years audited accounts. • The current price is Rs. 622.51/- per domestic cylinder on an average basis which is reasonable as per above policy Oil & Gas Regulatory Authority, Pakistan

REDRESSALOFCOMPLAINTS • Complaints redressal mechanism as specified under Complaints Resolution Procedure Regulations, 2003 • Complaint entertained if the consumer fails to get relief from the licensee • Senior officers have been delegated the powers to resolve the complaints after getting requisite information from complainant, concerned company and, if required, after hearing the parties • Any person aggrieved by the decision of the delegated officer has a right to appeal to the Authority for review of the decision • Any person aggrieved by the decision of the Authority has a right of appeal in the higher Courts Oil & Gas Regulatory Authority, Pakistan

REDRESSAL OF COMPLAINTS Summary of Complaints (FY 2006-07 up to 31-05-2007 ): Oil & Gas Regulatory Authority, Pakistan

Study visits UFG / Line Losses Benchmarks Human resource cost benchmarks Complaint redressal mechanism Review of Tariff Mechanism Legal framework Way Forward • Expected audience • Oil & Gas regulators across South-Asia • Electricity sector regulators Oil & Gas Regulatory Authority, Pakistan

“ROLE OF OIL AND GAS REGULATORY AUTHORITY (OGRA)” BY AHSAN MAQBOOL EXECUTIVE DIRECTOR (P&C)