“ROLE OF OIL AND GAS REGULATORY AUTHORITY

(OGRA)”

Petroleum Sector RegulationsPetroleum Sector Regulations Profile of the AuthorityProfile of the Authority Powers and FunctionsPowers and Functions Legal FrameworkLegal Framework Licences GrantedLicences Granted Tariff MechanismTariff Mechanism Tariff StructureTariff Structure Petroleum Products PricesPetroleum Products Prices LPG Prices LPG Prices Redressal of ComplaintsRedressal of Complaints Way Forward

CONTENTSCONTENTS

PETROLEUM SECTOR REGULATIONS

Establishment of Natural Gas Regulatory Authority (NGRA) in 2000 to Establishment of Natural Gas Regulatory Authority (NGRA) in 2000 to regulate natural gas pipelines, transmission, distribution and sales regulate natural gas pipelines, transmission, distribution and sales thereofthereof

Establishment of Oil & Gas Regulatory Authority (OGRA) in 2002 to Establishment of Oil & Gas Regulatory Authority (OGRA) in 2002 to regulate midstream and downstream oil and gas sector. NGRA regulate midstream and downstream oil and gas sector. NGRA subsumed in OGRAsubsumed in OGRA

The Authority is independent in the performance of its functions and The Authority is independent in the performance of its functions and

has has exclusiveexclusive powers to deal with the matters assigned in the powers to deal with the matters assigned in the

OrdinanceOrdinance

Government may issue policy guidelines Government may issue policy guidelines not inconsistentnot inconsistent with with

the Ordinance and the Authority is obligated to comply with such the Ordinance and the Authority is obligated to comply with such policy guidelinespolicy guidelines

PROFILE OF THE AUTHORITY

OGRA of following members OGRA of following members appointed by the Federal appointed by the Federal Government through an open competitive process as under:Government through an open competitive process as under:

Mr. Munir Ahmad, ChairmanMr. Munir Ahmad, Chairman

Mr. Rashid Farooq, Member (Oil)Mr. Rashid Farooq, Member (Oil)

Mr. M. H. Asif, Member (Finance)Mr. M. H. Asif, Member (Finance)

Member (Gas), Vacant (since 20.12.2006)Member (Gas), Vacant (since 20.12.2006)

Staff Strength: 175 ( 84 executives and 91 support staff)Staff Strength: 175 ( 84 executives and 91 support staff) OGRA regulates 79% of the energy sectorOGRA regulates 79% of the energy sector

ObjectivesObjectives:-:-Foster competitionFoster competition

Increase private investment and ownership in the midstream and Increase private investment and ownership in the midstream and downstream petroleum industrydownstream petroleum industry

Protect the public interest while respecting individual rights Protect the public interest while respecting individual rights

Provide effective and efficient regulationProvide effective and efficient regulation

POWERS & FUNCTIONS

Grant of licences for regulated activities namely: Grant of licences for regulated activities namely:

(i)(i) Natural GasNatural Gas

Pipelines, transmission, distribution, sale and Pipelines, transmission, distribution, sale and storagestorage

(ii)(ii) CNGCNG, LPG and LNG, LPG and LNG

Installations, production, storage, transportation Installations, production, storage, transportation and marketingand marketing

(iii) (iii) OilOil

Pipelines, refineries, storages, lube oil blending Pipelines, refineries, storages, lube oil blending plants and marketing of petroleum productsplants and marketing of petroleum products

-- Main functions of the Authority areMain functions of the Authority are::

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 GRANTEDUp to Up to

21.06.2007 21.06.2007 CNGCNG

• Provisional licences for construction Provisional licences for construction of of CNG stationsCNG stations

:: 53945394

• Marketing licences for operation of Marketing licences for operation of CNG CNG stationsstations

:: 14221422

• Vehicles convertedVehicles converted :: 1.2 million1.2 million LPGLPG

• Provisional licences for construction Provisional licences for construction of of LPG storage & filling facilitiesLPG storage & filling facilities

:: 6363

• Marketing licences for operation of Marketing licences for operation of LPG LPG storage & filling facilitiesstorage & filling facilities

:: 5858

• Production LicencesProduction Licences

OILOIL• Lube oil blending / reclamation plantsLube oil blending / reclamation plants• Provisional licence for construction of Provisional licence for construction of

oil refinery at Port Qasimoil refinery at Port Qasim

:: 1414

0606

0101

Gas utilities are entitled to fixed rate of return (SNGPL 17.5% and Gas utilities are entitled to fixed rate of return (SNGPL 17.5% and

SSGCL 17%) on operating assets (ROA) before tax and financial SSGCL 17%) on operating assets (ROA) before tax and financial

chargescharges

Prudent, cost effective and economically efficient capital expenditure Prudent, cost effective and economically efficient capital expenditure

is allowed in the asset base for rate of return purposesis allowed in the asset base for rate of return purposes

Prudent operating and maintenance costs are accepted in the Prudent operating and maintenance costs are accepted in the

determination of revenue requirementdetermination of revenue requirement

Incentives for efficiencyIncentives for efficiency

UFG / Line Losses Benchmarks (entire saving kept by Utility)UFG / Line Losses Benchmarks (entire saving kept by Utility)Human Resource (HR) Cost Benchmark (Equal sharing of savings)Human Resource (HR) Cost Benchmark (Equal sharing of savings)

TARIFF MECHANISM

The process is transparent and ensures effective effective participation of consumers and general publicparticipation of consumers and general public

TARIFF MECHANISM

Public Notice

Public Comments / Interventions

Admission of Petition

Public Hearing

Final Scrutiny

Notification of Gas Prices

Authority’s Decision

Federal Government Advice

UFG / Line Losses Benchmarks

TARIFF MECHANISM

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

SNGPLActual 8.87% 7.98% 8.19% 6.75% 6.86%6.86% 6.61%6.61%

Allowed 8.87% 7.98% 8.19% * 6.50% * 6.00% *5.85%

SSGCLActual 8.36% 7.60% 7.57% 7.09% 7.48%7.48% 6.65%6.65%

Allowed 8.36% 7.60% 7.57% * 6.50% * 6.00% *5.85%

* Benchmark set by OGRA Recurring Saving Rs.2.5 billion / annum

EFFICIENCY INCENTIVES FOR GAS COMPANIES

TARIFF MECHANISM

EFFICIENCY INCENTIVES FOR GAS COMPANIES

Human Resource (HR) Cost BenchmarksHuman Resource (HR) Cost Benchmarks

Actual HR cost for FY 2004-05 used as base year and indexed in Actual HR cost for FY 2004-05 used as base year and indexed in subsequent years on the following basis:subsequent years on the following basis:

50% of notified consumer price index50% of notified consumer price index 60% of incremental number of gas consumers60% of incremental number of gas consumers 20% of incremental transmission & distribution network20% of incremental transmission & distribution network 20% of the incremental sales volume20% of the incremental sales volume

Sharing of Savings or Excess in:Sharing of Savings or Excess in:

a) a) UFG: UFG: Entirely by gas companiesEntirely by gas companies

b) b) HRHR Cost:Cost: Equally between gas companies and consumersEqually between gas companies and consumers

TARIFF STRUCTURE

ParticularsParticulars2004-052004-05ActualActual

2005-062005-06ActualActual

2006-07 2006-07 EstimatedEstimated

2007-08 2007-08 EstimatedEstimated

Volume (BBTU)Volume (BBTU) 505,543505,543 539,099539,099 545,289545,289 559,003559,003

Cost of gasCost of gas 140.82140.82 170.67170.67 180.47180.47 186.24186.24

T & D cost and T & D cost and depreciationdepreciation 17.5917.59 18.5118.51 22.1622.16 23.2223.22

Return on assetsReturn on assets 10.7010.70 10.6610.66 11.1111.11 11.5611.56

Other incomeOther income (4.18)(4.18) (3.55)(3.55) (3.81)(3.81) (4.09)(4.09)

Average Prescribed PriceAverage Prescribed Price

(Revenue Requirements)(Revenue Requirements) 164.93164.93 196.35196.35 209.93209.93 216.93216.93

Average Sale PriceAverage Sale Price 167.56167.56 200.14200.14 229.25229.25 220.63220.63

Gas Dev. SurchargeGas Dev. Surcharge 2.642.64 3.793.79 19.3219.32 3.703.70

SUI NORTHERN GAS PIPELINES LIMITEDSUI NORTHERN GAS PIPELINES LIMITED Rs./MMBTU

TARIFF STRUCTURE (FY 2007-08)

SectorSector Average cost of Average cost of supplysupply

Sale PriceSale Price (Subsidy)/GDS(Subsidy)/GDS

1- Domestic1- Domestic Rs./MMBTURs./MMBTU Rs./MMBTURs./MMBTU Rs./MMBTURs./MMBTU

First slabFirst slab 214.99214.99 78.3878.38 (136.61)(136.61)

Second slabSecond slab 214.99214.99 82.0782.07 (132.92)(132.92)

Third slabThird slab 214.99214.99 149.40149.40 (65.59)(65.59)

Fourth slabFourth slab 214.99214.99 239.10239.10 24.1124.11

Fifth slabFifth slab 214.99214.99 310.92310.92 95.9395.93

2-Fertilizer2-Fertilizer

A-Old PlantsA-Old Plants- Feedstock- Feedstock- Fuel- Fuel

214.99214.99214.99214.99

91.5291.52238.38238.38

(123.47)(123.47)23.3923.39

B-New PlantsB-New Plants- Feedstock- Feedstock- Fuel- Fuel

214.99214.99214.99214.99

36.7736.77238.38238.38

(178.22)(178.22)23.3923.39

TARIFF STRUCTURE (FY 2007-08)

SectorSector Average cost of Average cost of supplysupply

Sale PriceSale Price (Subsidy)/GDS(Subsidy)/GDS

Rs./MMBTURs./MMBTU Rs./MMBTURs./MMBTU Rs./MMBTURs./MMBTU

3- Commercial3- Commercial 214.99214.99 268.23268.23 53.2453.24

4- Industrial4- Industrial 214.99214.99 238.38238.38 23.3923.39

5- Power5- Power 214.99214.99 238.38238.38 23.3923.39

6- Cement6- Cement 214.99214.99 305.15305.15 90.1690.16

7-CNG Stations7-CNG Stations 214.99214.99 264.87264.87 49.8849.88

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)

ParticularsParticulars MSMS HOBCHOBC KeroseneKerosene LDOLDO *HSD*HSD

Ex-refinery before PDC Ex-refinery before PDC (Price Differential Claim)(Price Differential Claim)

33.1433.14 33.9633.96 33.9133.91 29.4329.43 34.2534.25

PDCPDC 0.000.00 0.000.00 (3.99)(3.99) (4.24)(4.24) (5.21)(5.21)

Ex-refinery after PDCEx-refinery after PDC 33.1433.14 33.9633.96 27.9227.92 25.1925.19 29.0429.04

Excise dutyExcise duty 0.000.00 0.000.00 0.000.00 0.000.00 0.000.00

PDLPDL 8.188.18 15.5715.57 0.000.00 0.000.00 0.000.00

IFEMIFEM 2.122.12 2.952.95 1.671.67 2.172.17 1.481.48

OMC margin (3.5%)OMC margin (3.5%) 1.521.52 1.841.84 1.041.04 0.960.96 1.071.07

Dealer margin (4%)Dealer margin (4%) 1.741.74 2.102.10 0.000.00 0.000.00 1.221.22

Sales tax (15%)Sales tax (15%) 7.007.00 8.468.46 4.604.60 4.254.25 4.924.92

Ex-depot sale priceEx-depot sale price 53.7053.70 64.8864.88 35.2335.23 32.5732.57 37.7337.73

*HSD is based on PSO’s price*Custom duty on HSD is Rs. 3.14 per litre

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:

(i) Import parity price of LPG;

(ii) The local producers’ price;

(iii) 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

LPG PRODUCERS’ PRICES

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

Natural Gas Natural Gas

LPGLPG CNGCNG OilOil TotalTotal

Complaints receivedComplaints received 14841484 9191 5555 1515 16451645

Complaints resolvedComplaints resolved 10721072 8585 4646 1212 12151215

Complaints under processComplaints under process 412412 0606 0909 0303 430430

Appeals to the Authority against Appeals to the Authority against decisions of Designated Officer decisions of Designated Officer

34 34 -- -- -- 34 34

Appeals decided by the Appeals decided by the AuthorityAuthority

2323 -- -- -- 2323

Appeals to High Court against Appeals to High Court against decisions of the Authoritydecisions of the Authority

0202 -- -- -- 0202

Summary of Complaints (FY 2006-07 up to 31-05-2007 ):

REDRESSAL OF COMPLAINTS

Way ForwardWay Forward

Study visits UFG / Line Losses UFG / Line Losses

BenchmarksBenchmarks Human resource cost Human resource cost

benchmarksbenchmarks Complaint redressal Complaint redressal

mechanismmechanism Review of Tariff MechanismReview of Tariff Mechanism Legal frameworkLegal framework

Expected audience Oil & Gas regulators across Oil & Gas regulators across

South-AsiaSouth-Asia Electricity sector regulatorsElectricity sector regulators