“ROLE OF OIL AND GAS REGULATORY AUTHORITY (OGRA)”

Way Forward Petroleum Sector Regulations Profile of the Authority 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

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

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

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

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

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

LICENCES GRANTED CNG : Vehicles converted Up to 21.06.2007 Provisional licences for construction of CNG stations : 5394 Marketing licences for operation of CNG stations 1422 Vehicles converted 1.2 million LPG Provisional licences for construction of LPG storage & filling facilities 63 Marketing licences for operation of LPG storage & filling facilities 58 Production Licences OIL Lube oil blending / reclamation plants Provisional licence for construction of oil refinery at Port Qasim 14 06 01

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)

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

TARIFF MECHANISM UFG / Line Losses Benchmarks EFFICIENCY INCENTIVES FOR GAS COMPANIES UFG / Line Losses Benchmarks 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 SNGPL Actual 8.87% 7.98% 8.19% 6.75% 6.86% 6.61% Allowed * 6.50% * 6.00% *5.85% SSGCL 8.36% 7.60% 7.57% 7.09% 7.48% 6.65% * Benchmark set by OGRA Recurring Saving Rs.2.5 billion / annum

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) HR Cost: Equally between gas companies and consumers

TARIFF STRUCTURE Particulars 2004-05 Actual 2005-06 Actual SUI NORTHERN GAS PIPELINES LIMITED Rs./MMBTU Particulars 2004-05 Actual 2005-06 Actual 2006-07 Estimated 2007-08 Estimated Volume (BBTU) 505,543 539,099 545,289 559,003 Cost of gas 140.82 170.67 180.47 186.24 T & D cost and depreciation 17.59 18.51 22.16 23.22 Return on assets 10.70 10.66 11.11 11.56 Other income (4.18) (3.55) (3.81) (4.09) Average Prescribed Price (Revenue Requirements) 164.93 196.35 209.93 216.93 Average Sale Price 167.56 200.14 229.25 220.63 Gas Dev. Surcharge 2.64 3.79 19.32 3.70

TARIFF STRUCTURE (FY 2007-08) Sector Average cost of supply Sale Price (Subsidy)/GDS 1- Domestic Rs./MMBTU First slab 214.99 78.38 (136.61) Second slab 82.07 (132.92) Third slab 149.40 (65.59) Fourth slab 239.10 24.11 Fifth slab 310.92 95.93 2-Fertilizer A-Old Plants - Feedstock - Fuel 91.52 238.38 (123.47) 23.39 B-New Plants 36.77 (178.22)

TARIFF STRUCTURE (FY 2007-08) Sector Average cost of supply Sale Price (Subsidy)/GDS Rs./MMBTU 3- Commercial 214.99 268.23 53.24 4- Industrial 238.38 23.39 5- Power 6- Cement 305.15 90.16 7-CNG Stations 264.87 49.88

PETROLEUM PRODUCTS’ PRICES Determination & notification of petroleum products prices transferred to OGRA from OCAC w.e.f. 01-04-2006 Specific policy 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

TARIFF STRUCTURE (w.e.f. 01-05-2007) Particulars MS HOBC Kerosene LDO *HSD Ex-refinery before PDC (Price Differential Claim) 33.14 33.96 33.91 29.43 34.25 PDC 0.00 (3.99) (4.24) (5.21) Ex-refinery after PDC 27.92 25.19 29.04 Excise duty PDL 8.18 15.57 IFEM 2.12 2.95 1.67 2.17 1.48 OMC margin (3.5%) 1.52 1.84 1.04 0.96 1.07 Dealer margin (4%) 1.74 2.10 1.22 Sales tax (15%) 7.00 8.46 4.60 4.25 4.92 Ex-depot sale price 53.70 64.88 35.23 32.57 37.73 *HSD is based on PSO’s price *Custom duty on HSD is Rs. 3.14 per litre

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

REDRESSAL OF COMPLAINTS 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

REDRESSAL OF COMPLAINTS Summary of Complaints (FY 2006-07 up to 31-05-2007 ): Natural Gas LPG CNG Oil Total Complaints received 1484 91 55 15 1645 Complaints resolved 1072 85 46 12 1215 Complaints under process 412 06 09 03 430 Appeals to the Authority against decisions of Designated Officer 34 - Appeals decided by the Authority 23 Appeals to High Court against decisions of the Authority 02

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