Sindh protests to centre over gas price mechanism

File photo shows Chief Minister Sindh Syed Qaim Ali Shah and Prime Minister Muhammad Nawaz Sharif.— Online/File

 

ISLAMABAD: Challen­ging the centre’s legal and constitutional powers, Sindh has protested over changes in consumer price mechanism and dismantling of a decade-old production agreement with Mari Gas approved by a committee of the federal cabinet recently.

In a hard-hitting formal protest lodged with Prime Minister Nawaz Sharif, Sindh Chief Minister Syed Qaim Ali Shah has demanded immediate summoning of a much delayed session of the Council of Common Interest (CCI) to discuss a matter bound to eat up more than 65 per cent of Sindh’s revenue share.

Also read: Mari GPA to be replaced with market related formula

“Sindh being the largest producer of natural gas stands to lose up to 65 per cent of GDS (gas development surcharge) share due to these decisions,” said the chief minister. Sindh produces almost 70pc of the country’s total gas supplies at present.

Mr Shah has referred to two Nov 20 decisions of the Economic Coordination Committee (ECC) of the cabinet led by Finance Minister Ishaq Dar. Mr Shah said the federal government had firstly issued policy guidelines to the Oil and Gas Regulatory Authority (Ogra) for the upward price adjustment of natural gas for securing profitability of the SSGCL and SSGCL and then dismantled the Gas Pricing Agreement (GPA) of Mari Petroleum Company Limited to change it form cost plus formula to crude oil-based formula.

“ECC’s decision is arbitrary, unconstitutional and in violation of Article 154 and 172 of the Constitution. Moreover, at no stage Government of Sindh was consulted on these critical matters impacting provincial economy,” protested the CM.

He referred to constitutional provisions because Article 154 required all decisions on natural gas (a provincial subject in Part II of the Federal Legislative List) be taken by the CCI. Article 154 also demands at least one CCI meeting in 90 days – another violation as the constitutional forum has not met for the past 10 months.

Likewise, Article-172(3) of the constitution required that subject to existing commitments and obligations, mineral oil and natural gas within the province or the territorial waters adjacent thereto shall vest jointly and equally in that province and the government. Mari Gas Company’s largest and the country’s second largest field (Mari Field) is located in District Ghotki of Sindh province.

The Sindh government has urged the prime minister to withdraw these ECC decisions immediately. “Moreover all relevant details may also please be shared with the provinces so that matter be discussed at the competent forum i.e. the Council of Common Interest,” he said.

Sindh’s protest over consumer gas pricing has emerged at a time when the government is about to formally notify substantially higher rates from Jan 1, 2015 under an agreement with the International Monetary Fund.

The proposed gas price adjustment for revival of profitability of the two gas companies has been estimated to eat up about Rs30 billion gas development surcharge of the provinces and increase average consumer tariff by more than 30pc.

Interestingly, Mr Dar had rejected in July the Mari’s request but approved on Nov 20 the dismantling of the GPA of the Mari Gas Company that would allow an increase in price from about 80 cents per mbtu to $2.17 by 2019 in phases.

As a consequence, the share price of the Mari Petroleum Company, a subsidiary of the military’s commercial arm Fauji Foundation and the government of Pakistan, jumped by 29pc in a single day and has been rising since then.

This was enabled through replacement of the cost plus gas agreement with a market-oriented crude oil-linked formula. According to Mari Gas, the provincial GDS would ultimately increase because of its fresh investments.

The new policy guidelines given to Ogra would effectively double the amount of system losses to be charged to the consumers and dilute ongoing investigations into the Rs82bn Ogra scandal case ordered by the Supreme Court. The Rs13bn required to be refunded by the SNGPL to consumers under the court decisions have not yet materialised.

Ogra had been directed to provisionally allow four different heads of gas volumes in the consumer tariff — “volumes pilfered by non-consumers, volumes consumed in law and order affected areas and impact of change of bulk-retail ratio on UFG (unaccounted for gas) using the base year as 2003-04”.

The additional charge to consumers would also include the provision of doubtful debts as determined at 1pc of the total gas sales, the policy guidelines said. Effectively, the rate of UFG loss to be required from 4.5pc has been increased to about 9pc with annual impact of about Rs30bn.

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