Govt decides to amend gas law

The federal government has decided to amend Natural Gas (Development Surcharge) Ordinance, 1967, that includes alteration in definitions for sale price and prescribed price aimed at enforcing recoveries and consequential punitive measures, official sources told Business Recorder.

The Natural Gas (Development Surcharge) Ordinance, 1967 was promulgated to provide for levy and collection of a development surcharge on natural gas and for the matters connected therewith.

The Gas Development Surcharge (GDS) is essentially a differential margin of sale price and prescribed price of the natural gas meaning thereby this differential margin will emerge when sale price exceeds the prescribed price. The net proceeds of GDS so collected under the Ordinance and Rules are being transferred to the provinces under the NFC Award 1990.

The Ordinance has gone through a number of amendments from time to time since its enactment in 1967.

According to the Petroleum Division, with a passage of time and evolving conditions, especially after establishment of Oil and Gas Regulatory Authority (Ogra) under OGRA Ordinance, 2002 many of the functions exercised by the Petroleum Division stand devolved to OGRA.

These functions primarily include determination and notification of gas producer and consumer gas sale prices being performed by Petroleum Division prior to Ogra. Although amendments were made in the GDS Ordinance and the rules from time to time to cater for the changed circumstances but the same could not be done in totality which has led to generation of audit paras at the end of Directorate General of Audit Petroleum & Natural Resources.

These audit paras normally question the liberty of the gas companies for the payment of GDS and interest thereon in the absence of time limit specified in the Ordinance and Rules.

In addition, a new phenomenon has emerged during past many years whereby in the absence of adequate raise in consumer gas sale prices, the differential margin between sale prices and the prescribed prices is resulting in negative GDS whereas the existing law doesn’t cover such scenario.

Similarly, gas selling companies listed in schedule of the Ordinance adjust/offset the negative differential margin against the payments from sector where the sale price is greater than the prescribed price or simply where the positive differential margin emerges.

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In addition to this, a backlog of GDS payables (principal and interest/LPS) has accumulated towards power plants due to circular debt. The issue has been discussed a number of times in the meetings of Public Accounts Committees and it was advised that appropriate amendments in the existing GDS law should be made to enforce the recoveries and consequential punitive measures.

The sources said, in order to address the anomalies in the present GDS law, the Petroleum Division suggested certain amendments which have following salient features: (i) definitions for sale price and prescribed price have been amended in view of fact that these are now under the ambit of OGRA Ordinance, 2002 and the rules made thereunder;(ii) definition for ‘negative differential margin’ and late payment surcharge’ have been added to wriggle out the issues being faced by the gas companies when their sale prices are lower than the prescribed prices.

The GDS on this account would not be chargeable and it would not attract LPS; (iii) gas companies have been authorized to net-off ‘positive differential margin’ with ‘negative differential margin’ while remaining within same financial year in cases when gas companies are advised to sell gas at lower sale prices than the actual cost of gas or prescribed price resulting into negative GDS; and (iv) penalty for disconnection of gas supply to dedicated consumers who consistently default in payment of GDS liability.

The proposed amendments in the Natural Gas (Development Surcharge) Ordinance, 1967 were shared with Finance and Power Divisions for their comments.

Upon receipt of their comments, the proposed amendments along with comments of Finance and Power Divisions were shared with the Law Division for vetting of the draft GDS Amendment Bill. The Law Division has vetted the proposed amendments to the GDS Ordinance, 1967.

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