Effectiveness of Oil and Gas Regulatory Authority
Background
The regulatory framework in Pakistan’s energy sector has remained weak. In the 1960s, the natural gas industry was regulated by independent regulators. But they soon lost their independence, as most regulated companies were state-owned. After that, the sector remained under government control. The petroleum sector (oil and gas) was managed by the Oil and Gas Development Corporation (OGDC) (Kemal et al., 2002).
In the 1990s, it was realised that the government couldn’t be a policymaker, regulator, and service provider simultaneously because of fiscal and management constraints. Efforts were made to liberalise, deregulate, and privatise. The objective was to overcome a weakness in the regulatory process and ensure efficiency in the economic systems. The policy function of the government was separated from regulation and service providers to offer a level playing field to service providers in the private sector. Independent regulatory authorities were established to supervise and develop different sectors. The Oil and Gas Regulatory Authority (OGRA) is one of these regulatory authorities[1].
OGRA was established on March 28, 2002, via the Oil and Gas Regulatory Authority Ordinance (2002). The ordinance got amended slightly in 2009, 2011 and 2021. Powers to regulate the midstream and downstream oil sector were transferred formally to OGRA in March 2006. Regulation of upstream activities and explosives department remained with the Ministry of Petroleum and Natural Resources, now Petroleum Division, Ministry of Energy.
Establishing an independent authority to regulate public utilities was a step towards restructuring and effectively regulating the midstream and downstream oil and gas industry. OGRA is a corporate body under the Cabinet Division.
OGRA Ordinance 2002
As stated in Ordinance No. XVII of 2002, the objective behind the establishment of OGRA was—to foster competition, increase private investment and ownership in the midstream and downstream petroleum industry, protect the public interest while respecting individual rights and provide effective and efficient regulations.
Under Section 3 (2), the Authority is a corporate body independent of the performance of its functions. As per Section 6 of the Ordinance 2002, the Authority has the exclusive right to grant licenses for any regulated activities to promote efficiency, cost-effectiveness, best practices, high safety, service standards etc.
It has the power to regulate activities, e.g., construction of pipelines, development, storage, distribution or transportation, and marketing of oil, natural gas, Liquified Natural Gas (LNG), Liquified Petroleum Gas (LPG) and Compressed Natural gas (CNG). OGRA can amend or revoke licenses for regulated activities and enforce compliance with license conditions. OGRA’s responsibility is to promote effective competition and develop and implement performance and service standards to create efficiency in the activities within its jurisdiction.
Additionally, the Authority is empowered to:
- Resolve complaints!
- Ensure the provision of open access and oversee investment programs and capital spending!
- Make rules and regulations according to the ordinance!
- Administer, and establish prices while safeguarding the public interest!
- Prescribe fines for misconduct!
- Determine rates for licensees!
- Enforce standards and specifications for refined oil products!
| Box 1. Functions
· Determine revenue requirements for each natural gas licensee and advise the Federal Government to determine the prescribed price. · Specify and enforce accounting and technical standards. · Prescribe procedures and standards for investment programs of the gas utilities and oversee their capital expenditure to ensure prudence. · Enforce standards and specifications for refined oil products as notified by the Federal Government. · Implement policy guidelines of the Federal Government, issued under Section 21 of the OGRA Ordinance, subject to their being consistent with the provisions of the Ordinance. · Computing and notifying ex-refinery price of SKO, including ex-depot prices of SKO and E-10 and Inland Freight Equalisation Margin (IFEM) for all products. · Monitoring prices of petroleum products under the deregulated scenario. · Computation of road and pipeline freight for transportation of petroleum products. · Resolution of public complaints and disputes against and between the licensees. |
Purpose of Evaluation
OGRA was established two decades ago. Sufficient time has passed for an organisation to get established and play an active role in the sector. This report intends to evaluate the effectiveness of OGRA. It will cover the quality of work done and the level of performance at OGRA. It will highlight loopholes and offer suggestions, that is, the steps to improve regulation of the oil and gas sector to ensure a reliable, sustainable supply of energy for the people and economy of Pakistan. While evaluating OGRA’s performance, the report will focus on OGRA’s capacity needed to perform its regulatory duties effectively.
[1] In 2000, Natural Gas Regulatory Authority (NGRA) was established under the Gas Regulatory Authority Ordinance, promulgated in March 1995. The objective at that time was_ to promote competition and attract private investment to divest the government holdings in the gas companies and regulate the gas companies’ operations.
