Collection of unjustified signature bonuses: LPG becomes 20 times costlier than natural gas

ISLAMABAD: The LPG once used to be known as poor’s fuel is now available 20 times more costly than the natural gas price and to this effect the signature bonus collected by LPG producers has also emerged as main cause in the mammoth hike of product’s price.

This has been stated in the official letter of Noor LPG Company Limited written on January 23, 2018 to Ogra unfolding that there is no mention of signature bonus or premium in the LPG policy approved by Council of Common Interests (CCI) but public sector LPG producers are making illegal mammoth money in the name of unjustified signature bonuses.

The letter of Noor LPG Company also reveals that the notified, Base-Stock price fully covers the cost of the LPG producers as well as its profit margins. “The signature bonus is unearned and unjustified income of the producer over and above the legitimate price allowed to them.”

However, Pakistan’s largest public sector producers of LPG are hell bent upon collecting the billions of rupees under the head of signature bonus and to this effect they appear to have begun a tug of war with the Lahore High Court in a bid to collect billions of rupees as ‘signature bonus’ before it is determined whether the bonus can be lawfully collected under the CCI-approved LPG Policy of 2016. The Lahore High Court (LHC) had ordered OGDCL and PPL to refrain from finalising auctions of LPG in two orders passed at the admission stage of proceedings initiated against OGDCL on 29th November, 2017 and against PPL on 11th January, 2018.

According to documents obtained by this correspondent, both producers exceeded their mandate under the earlier court orders thus compelling Justice Shahid Jamil Khan to stop all auctions of LPG on January 25, 2018.

Interestingly, while the LHC hears the cases to decide if producers are legally entitled to receipt of signature bonus, the two producers have gone on to collectively require deposit of signature bonuses totaling 2.433 billion in the two bids that were carried out in violation of the restraint orders of the LHC. Sources in OGDCL confirmed that they had asked for payment of signature bonuses after they were ordered not to finalise the auctions. These auctions pertain to five-year supply agreements and are thus likely to defeat ceiling on producer prices, not for a short term but over five years even if the courts declare charge of signature bonus unlawful. OGDCL and PPL have also advertised auction of their respective production at Nashpa field in the KP, in addition to the two auctions concerning production at Adhi and KPD where bids have already been received.

At the present rate, signature bonus expected to be received in violation of the CCI approved policy will be in excess of five billion rupees. “None of the respondents could satisfy the court whether in absence of notification of price fixation, auction in question could be undertaken,” noted order of Justice Shahid Jamil Khan on January 25, 2018.

“Till next date, the orders for grant of temporary relief are amended. Status quo shall be maintained regarding auction of LPG till the next date of hearing and the auctions which have been completed shall not be executed,” Justice Shahid Jamil Khan ordered.

Interestingly, industry experts say, the producers continue to use the signature bonus term incorrectly to charge for their LPG a price that far exceeds the maximum they are legally entitled to receive. Experts say that signature bonus is a mechanism used for grant of concessions, rather than sale of oil or gas as being used by public sector producers to avoid and defeat the regulatory regime prohibiting sale at a price exceeding maximum price.

The litigation between some LPG marketing companies and the two public sector giants revolves around the changed regulatory regime under the LPG production and distribution policy approved by CCI, the highest policy making body that brings together representatives of the federation and the four provinces.

The litigating marketing companies have invoked the constitutional jurisdiction of the high court to seek orders declaring the past practice of producers charging tens of millions in signature bonuses as a pre-requisite for sale of LPG. On the other hand, producers defend the practice by stating that signature bonus was permitted under the previous policy, where no cap was placed on LPG producer price, and was adjudges as such by the LHC in a judgment rendered by Justice Ayesha Malik.

The record of the litigation has brought to light some interesting aspects of the LPG industry, including the fact of CCI having prohibited sale of LPG by producers at a price higher than that notified by the Petroleum Division of the Ministry and Oil & Gas Regulatory Authority (Ogra) as far back as February 2016. The said decision was never implemented in the nearly two years since on the pretext that Ogra had not notified prices of LPG. As a direct consequence of such delay in the enforcement of the policy, producers have benefited by close to 5 billion rupees in the period since CCI decision to place a ceiling on LPG prices charged by the producers.

Irfan Khokhar, Chairman of LPG Distribution Association also gave his mind to the issue of signature bonus saying it is not only unjustified but has also been part of the price owing to which the LPG price for end consumers has increased. He did not stop here rather said that signature bonus is not less than a ‘Jagga Tax’ but it is a tool being used by LPG producers to illegally fleece the consumers.

Khokhar went on to say that the local LPG production cost stands at Rs63 per kg, but the import cost hovers in the range of Rs95-100 kg, but the local LPG is being charged from the poor consumers at the rate of imported price.