OGDCL makes Rs10b over & above notified price of LPG

ISLAMABAD: Oil and Gas Development Company (OGDCL) has admitted to collection of Rs10 billion in signature bonus over and above the maximum notified price of Liquefied Petroleum Gas (LPG), sources in Oil & Gas Regulatory Authority (Ogra) told The News.

The admission was made in an Ogra hearing to determine if the current LPG Policy and the amended LPG Rules permit charging of signature bonus by producers like OGDCL and Pakistan Petroleum Limited (PPL).

Documents presented at the hearing revealed that OGDCL continues to sell LPG at premiums of up to 20% over and above the maximum price in violation of the orders of three high courts. However, OGDCL maintains in its intra court appeal against a judgment of the Lahore High Court that the premiums “are not a component of price.”

OGDCL says that signature bonus is a method devised “for a transparent and competitive bid process” for sale of LPG “in the light of Section 3.1.1 of the LPG Policy, 2016.”

This correspondent has obtained a copy of the judgment of single Bench of the Lahore High Court presided by Justice Shahid Jamil which found, among other important findings relevant to LPG industry, that signature bonus charged by OGDCL was “over and above” the maximum price. Operative part of the judgment rendered by Justice Shahid Jamil transmitted four connected petitions challenging chargeability of signature bonus to Ogra.

Despite such findings and pending determination of legality of signature bonus, OGDCL continues to make ad hoc sales on the basis of signature bonus contrary to LPG Rules that forbid charge for LPG in excess of maximum price.

OGDCL insists that it is not conducting sales of LPG illegally. A senior officer of OGDCL, who has been dealing with the signature bonus dispute for more than five years, said that the Company had not violated any order of the court. OGDCL has referred to its bidding documents, in its appeal before the Lahore High Court to assert that they “clearly demonstrate that signature bonus is not a part or component of the price of LPG. It is rather a one-time lump sum payment payable by the successful bidder as a consideration for award of 05 years contract.”

OGDCL says that the Rs10 billion received so far is in addition to the price, and definitely not a part of it. “It is a mechanism for disposal of LPG to the licensed LPG marketing companies in a transparent manner through competitive bid process. However, the successful bidders would be required to pay LPG price as per the prevailing policy of the government of Pakistan,” states OGDCL in the appeal filed by its Manager (Commercial), Riaz Mirza.

Industry sources said that OGDCL was brazenly selling not just its own share of LPG but also that of PPL and GHPL in violation of interim and final orders of the high courts of Islamabad, Peshawar and Lahore. “Apparently, PPL and GHPL are also hiding behind OGDCL to have their share of LPG sold by a more courageous working interest owner,” said a source, who maintains that OGDCL has a decade long history of dodging court orders when it comes to sale of LPG at premiums.

Officers of PPL, who requested anonymity, also confirmed that the Company had been selling its share of LPG on signature bonus basis through OGDCL.

Sources said there were at least two contempt petitions presently pending against senior management of OGDCL for their constant refusal to comply with the orders of the high courts.

This correspondent obtained copies of orders passed by Peshawar High Court permitting OGDCL to conduct auction of LPG produced at Nashpa on 23rd February, 2018 but restraining it from finalising the auction or making supplies as a result. However, the ensuing correspondence between OGDCL and bidders shows that the Company proceeded to collect signature bonus and giving effect to the auction, one step at a time, until it literally started supplies under the auction in the month of April.

Sources informed this correspondent that OGDCL was currently supplying more than 800 metric tons per month to the highest bidders at the auction, and a fraction of that to non-bidders to create the false impression that the auction had not been given effect.

The litigation in Peshawar High Court has the additional element of preference reserved for the province under Article 158 of the Constitution of Pakistan. Shalimar Gas, the petitioner, has claimed that KP has a preferential right to supply of LPG produced at a wellhead within the province. OGDCL has included Sui Southern Gas, which does not have a gas distribution network in Punjab and KP, among its most favourite LPG marketing companies and supplied close to 800 metric tons to SSGC in April compared to 22 metric tons supplied to KP-based Saif Gas.

Sources in OGDCL said that the management had followed this course deliberately to send a message of defiance. These sources said that KP-based Shalimar Gas was excluded from the list of companies invited to lift LPG from Nashpa to give them the message that they could not be in LPG business and exercising their legal rights against OGDCL at the same time.

OGDCL officers have recently admitted at a hearing before Ogra that the company had received Rs10 billion in signature bonuses in the last decade alone. This information came to light at a hearing to determine whether the current LPG Policy and Rules permit producers to charge signature bonus or similar premiums over and above the maximum price notified by the Petroleum Division of the Federal Energy Ministry.

The figure of Rs10 billion includes signature bonus of Rs2.5 billion collected in the financial year ended 30 June 2017 alone.

Industry experts say that if Ogra does not declare signature bonus illegal, OGDCL, PPL and Government Holdings will collect approximately Rs6 billion in signature bonuses for the LPG supplies from Nashpa Field in Karak alone over the next five years.

The record of litigation in the Lahore and Peshawar high courts has brought to light some interesting aspects of the LPG business, including the fact of CCI having prohibited sale of LPG by producers at a price higher than that notified by the Petroleum Division as far back as February 2016. The said decision was never implemented in more than 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 Rs5 billion in the period since CCI decision to place a ceiling on LPG prices charged by the producers.