Ayesha A. Malik J. This common judgment decides upon the issues raised in the instant Petition along with connected Petitions, as detailed in Sche dule "A" appended with the judgment, as all Petitions raises common questions of law and facts.
2. The Petitioners before the Court are all primarily engaged in the textile sector or the CNG sector and are consumers of Re-gasified Liquefied Natural Gas ("RLNG"). As per the prayers in the Petitions, the Petitioners have challenged the vires of SRO 405(1)/2015 dated 7.2.2015 and SRO 971(1)/2015 dated 30.9.2015 along with tariff determinations dated 7.10.2016, 2.6.2017 and 20.6.2017. During the course of arguments, the Petitioners limited their grievance to the procedure followed by OGRA in setting the RLNG price without any hearing. The Petitioners are specifically aggrieved by the tariff determinations made by the Respondent OGRA dated 2.6.2017 and 20.6.2017 which revised the RLNG tariff for the period 1.7.2016 to 31.12.2016 and for the period 1.1.2017 to 31.3.2017 unilaterally , without any hearing. The Petitioners are also aggrieved by the tariff determination dated 7.10.2016 made by the Respondent OGRA in relation to the quantum of cost of service and Unaccounted for Gas ("UFG") permitted to the Respondent SNGPL. The basis of the Petitioners? grievance is that they have been denied the right of hearing in each of the impugned determinations; that cost of service and determination of transmission and distribution losses as well as UFG necessitates due process and a hearing, before OGRA can adjudicate upon the same; that the tariff for the impugned period was decided after a public hearing, however OGRA of its own motion, re-adjusted the tariff and made it applicable retrospectively on the tariff billed to the Petitioners.
Facts of the Case
3. On account of shortage of natural gas in the country , the Federal Government made arrangements to import liquid natural gas to be re-gasified as RLNG. The Economic Coordination Com mittee ("ECC") of the Federal Cabinet on 2.7.2013 authorized the Ministry of Petroleum and Natural Resources, Islamabad to import LNG up to 500 MMCFD on Delivered Ex-Ship (DES) basis from Qatar . On 27.7.2015 the ECC approved the import of LNG which was to be re-gasified by the re-ga sification terminals to be set up at variou s sea ports. The re-gasification process results in RLNG which is to be supplied through the SSGC and SNGPL transmission and distribution networks for industrial consumers who were not getting sufficient supply of the indigenously produced natural gas.
At the time it was decided that the RLNG pricing and other matters were to be determined by OGRA under the Petroleum Products (Petroleum Levy) Ordinance, 1961 ("1961 Ordinance") on monthly basis, in line with other petroleum products. To give effect to this decision, appropriate amendments were made in the 1961 Ordinance through SRO 405(1)/2015 dated 7.5.2015 whereby RLNG was included in the First Schedule as a petroleum product and the name of SNGPL and SSGPL were inserted in the Second Schedule as gas utilities. The Federal Government also issued SRO 971(1)/2015 dated 3.9.2015 stating that RLNG price shall be determined by OGRA and notified by the Pakistan State Oil. On 27.7.2015 the Federal Government issued its pricing components and price parameters for RLNG which included cost of service, transmission and distribution losses. OGRA was required to determine both cost of service and transmission and distribution losses with reference to RLNG price.
OGRA made a provisional determination on 7.10.2015. PSO, SSGC, SNGPL, all approached OGRA to review its provisional determination to include actual and anticipated costs of importing and supplying RLNG, however , OGRA did not agree to all the claims, but accepted some of the claims in its decision of 18.3.2016. The decision of 18.3.2016 is based on public hearings carried out at Karachi and Lahore. The Petitioners and others participated in these hearings. The said determination was made for the period April 2015 to January 2016 where after OGRA made subsequent determinations, however no public hearing was of fered for any of the subsequent decisions.
Arguments of counsel
4. Counsel for the Petitioners argued that the RLNG Tariff Determination Framework comprises of the gas supply agreements between the Petitioners and SNGPL and various decisions and notifications issued by the Federal Government, by the ECC and by OGRA. The core feature of this framework is that the tariff determination of RLNG was ring-fenced keeping it separate from the tariff determination of natural gas. Hence it calls for a separate process to settle RLNG prices. The Petitioners are aggrieved by the manner in which RLNG tariff determination is made by OGRA as it is done without hearing the Petitioners with respect to key components of the tariff, which include transmission and distribution losses as well as cost of service. Learned counsel argued that RLNG tariff determination is made by OGRA on the basis of the delegation of authority by the Federal Government in terms of Section 6(2)(r) of the Oil and Gas Regula tory Authority Ordinance, 2002 ("2002 Ordinance"). The Counsel argued that OGRA is bound to hold a public hearing in all matters where its decision is with reference to a regulated activity as per the provisions of Section 9 of the 2002 Ordinance. Learned counsel further argued that the Petitioners challenged the vires of SRO 405(1)/2015 dated 7.2.2015 and SRO 971(1)/2015 dated 30.9.2015 on the ground that OGRA has the power to fix the tariff under the 2002 Ordinance and the process to be followed for RLNG tariff is as per the 2002 Ordinance. However during the course of arguments since the Respondents accept this contention, the Petitioners do not press the vires of the two SROs in this case.
5. Learned counsel argued that the Petitioners essentially press their right of hearing at the time when the tariff is determined in order to ensure that their objections with reference to the prudency of transmission and distribution losses and cost of service are duly considered before granting amounts to the Respondent SNGPL or SSGC. They argued that the RLNG tariff was determined in the impugned determinations, without grant of hearing to the Petitioners. In the process the Respondents radically changed the computation mechanism of various costs allowed to SNGPL/SSGC without giving the Petitioners an opportunity of objecting to the same. By way of example, the Petitioners stated that the Respondents included cost of service in the RLNG tariff determination on 7.10.2016 without any hearing to the Petitioners in terms of Section 9 and made it applicable retrospectively , whereas originally through earlier determinations they were not granted any cost of service despite their requests.
OGRA also revised the manner in which UFG was calculated through its determination of 7.10.2016 even though the mechanism for calculating UFG is decided in the agreements with SNGPL and again during the public hearings at Lahore and Karachi. In essence they claim that in the order of 7.10.2016 OGRA reviewed its earlier orders and changed the computation mechanism for UFG allowance and allowed cost of service with retrospective effect. As per the counsels? arguments these issues were decided and finalized by OGRA vide its determination of 18.3.2016 and could not have been revised with retrospective effect. They further argued, if at all any amount was to be fixed under these heads, it had to be done prospectively after hearing the Petitioners. Learned Counsel also argued that tariff determination for the period April 2015 to January 2016 was finalized through the tariff determination of 18.3.2016 which is based on a public hearing. This decision of 18.3.2016 was reviewed and changed with retrospective effect on 7.10.2016 without giving the Petitioners an opportunity of hearing, hence the Petitioners have challenged the same.
6. Learned counsel also argued that the impact of the impugned determinations is that it has increased the cost of service allowed to SNGPL over and above 41 cents per MMBTU to 81 cents per MMBTU, hence the cost of service has doubled, without hearing the Petitioners and without giving them an opportunity to object to the increase made.
It is the Petitioners? contention that the Respondent OGRA has not considered any of the objections of the Petitioners and consequently gave a huge financial benefit to SNGPL. In the same way, they argued that SNGPL was allowed UFG at 4.5% which increased to 9.2% which is unreasonable and does not meet the standard of reasonableness and prudency . In this regard, learned counsel relies upon OGRA Natural Gas (Regulated Third Party Access) Rules, 2012 ("2012 Rules"), in terms of which UFG is to be determine d. The Counsel contend that following any other methodology is against the terms of their agreement. Learned counsel further argued that RLNG Tariff Determination is a power given to OGRA by the Federal Government in terms of Section 6(2)(r) of the 2002 Ordinance, hence OGRA is required to ensure that it is in compliance with the requirements of the 2002 Ordinance, such that in terms of Section 9 of the 2002 Ordinance, an obligation to hold a public hearing in all matters where the decision relates to a regulated activity must be complied with.
7. On behalf of Respondent OGRA, it was argued that OGRA is in compliance with the law and the guidelines provided by the Federal Government. Learned counsel explained that in order to deal with the shortfall of locally produced natural gas, the ECC of the Federal Cabinet authorized the Ministry of Petroleum and Natural Resources to negotiate with Qatar Gas for the impo rt of LNG on Delivered Ex-Ship basis. The ECC approved the import of LNG on 2.7.2013 on DES basis to be re-gasified as RLNG. Thereafter the Federal Government put into place a framework on the basis of which the price of RLNG is to be determined. In princi ple, it was agreed that the price determination framework will be similar to the tariff determination of petroleum products under the 1961 Ordinance and the Rules. Consequently SRO 405(1 )/2015 dated 7.5.2015 was issued and thereafter SRO 971(1)/2015 dated 3.9.2015 was issued to include RLNG in the 1961 Ordinance. In this framework OGRA acts as the delegatee of the Federal Government and even though authorized to determine RLNG prices as per the 1961 Ordinance it is bound by the guidelines provided by the Federal Government under Section 21 of the 2002 Ordinance. The price determination of RLNG is carried out on a monthly and provisional basis and ultimately a final determination is made by OGRA based on actual costs which is then notified by PSO. During the initial phase, one of the key considerations was that there was no infrastructure for the import and distribution of RLNG, hence SNGPL would use its existing infrastructure on the understanding that ultimately this will be separated and RLNG shall and have its own infrastructure. This has been factored into the price determinations made by OGRA for which it held two public hearings in which the Petitioners participated.
8. Learned counsel further argued that RLNG prices are determined on provisional basis at the start of the pricing period and have to be actualized when the actual pricing data becomes available to OGRA. In this regard, the Federal Government has issued the pricin g components for RLNG on 27.7.2015 on the basis of which the price for RLNG is actualized. She explained that in terms of the letter issued on 27.7.2015 a public hearing is not required for all components as some of the components are provided for by the Federal Government whereas OGRA has to determine cost of services and transmission and distribution losses. A public heari ng is given with reference to the cost of services and the transmission and distribution losses and was provided to the Petitioners who are before the Court. So far as the financial year 2015-16 and 2016-17 are concerned, the Petitioners were heard. Learned counsel clarified that throughout this process, the Petitioners were aware that the tariff determination was provisional and subject to actualization at the end of the pricing period. She further explained that once a public hearing is granted and all objections are noted, it is not necessary that at the time of actualization of the pricing components that the Petitioners are heard. She further stated that the 1961 Ordinance does not require a public hearing at every stage and any objections that the Petitioners had towards the UFG or cost of services could have been raised with OGRA in the first instan ce. Learned counsel also stated that the entire dispute stems from the notion that the Petitioners are entitled to a hearing at every stage on monthly basis when the tariff is determined.
This is not how the tariff determination is modeled and it is also practically impossi ble. The Counsel placed several RLNG determinations on record to show that the Petitioners have not objected to the computation or methodology subsequent to the impugned determinations. Hence, she argued that no case is made out before this Court.
9. On behalf of Respondent SNGPL, it was argued that RLNG was ring-fenced, meaning that all costs incurred by the gas utility company in supplying RLNG would not be included in the revenue requirements of the company for indigenously produced natural gas. The ring-fencing requirement was given to ensure that the extra cost of importing LNG and process to re-gasify and make RLNG would be borne by the consumer for whose benefit this entire exercise was carried out. The Petitioners entered into cost supply agreemen ts with the Respondent SNGPL and they agreed to bear the costs of import of RLNG notwithstanding the fact that it may be receiving indigenously produced natural gas in lieu of RLNG. The Petitioners also agreed to pay tariff for RLNG as determined by OGRA and notified by the PSO which includes the cost of services in which it was agreed that distribution and transmission losses would be paid by the Petitioners. Furthermore they agreed that OGRA will make provisional determination on a monthly basis which would be subject to a final determination and that if there is any balance in payment between the provisional tariff and the final tariff, based on the actual costs that would be paid by the Petitioners. Further that OGRA in fact carried out this entire process and has been in compliance with the law yet the Petitioners have challenged this process notwithstanding the fact that they have contractually agreed to it.
Learned counsel stated that it has already been decided by this Court vide judgme nt dated 8.2.2017 passed in WP No.1821/2017 titled Mayfair Limited etc v. Federation of Pakistan etc. that there is a contractual agreement between the parties which governs the terms and conditions on which RLNG will be supplied to the consumers and the terms of the agreement specifically provide what amounts are to be paid. Under the circumstances, learned counsel argued that the Petitioners are not entitled to any relief from this Court. SNGPL has been supplying RLNG to the Petitioners and has been accumulating all data of actual costs incurred in relation thereto. These costs are put before OGRA who then makes its determination. The entire mechanism has been transparent after following due process and the Petitioners have no cause to claim that they have been denied public hearing when the record shows otherwise.
Opinion of the Court the legal framework:
10. The 1961 Ordinance provides for the levy and collection of petroleum levy on petroleum products and matters connected therewith. SRO 405(1)/2015 dated 7.5.2015 amended the First and Second Schedule of the 1961 Ordinance to bring RLNG within the scope of petroleum products so that RLNG is treated as a petroleum product and to treat SNGPL and SSGCL as utility companies under the 1961 Ordinance. Further SRO 971(1)/2015 dated 3.9.2015 brought RLNG within the sphere of the categories of petroleum products for which the Federal Government fixes prices and may delega te its function to OGRA. The Petitioners do not dispute this position and no longer raise challenge to the SROs. The 2002 Ordinance established OGRA and in terms of Section 6 of the 2002 Ordinance set out the powers and functions of OGRA. RLNG price determination has been delegated to OGRA consequent to Section 6(2)(r) of the 2002 Ordinance which provides that OGRA shall administer or establish prices for those categories of petroleum for which the Federal Government estab lishes prices and may delegate the function to the Authority . Hence under the said Ordinance OGRA is a delegatee of the Federal Government.
Section 13 provides for the review , rescind or change of the Authority's decision who can rehear and change a decision in the event of changed circumstances or the discovery of new evidence which was not available at the earlier stage and will materially after the decision. Section 21 grants the Federal Government the power to issue policy guidelines to OGRA on matters of policy not inconsistent with the provisions of the 2002 Ordinance or rules made thereunder and OGRA must comply with them. These directives are therefore binding on OGRA. Section 9 provides for the right of hearing in regulated activity , where the decision of the Authority may directly and adversely affect the right of a person. As per the contentions raised before the Court all parties agree that OGRA sets RLNG prices as a delegatee of the Federal Government after making its determination as per the formula provided in the directives.
11. The issue raised by the Petitioners is with respect to their right of hearing when OGRA makes its determination for cost of services and transmission and distribution losses in the supply of RLNG because this decision directly and adversely affects their rights. They argue that OGRA is obligated to hear them before making a determination on these components as per Section 9 of the 2002 Ordinance. Specifically they raise the issue that RLNG tariff determination after March 2016 has been made without a public hearing and quantums decided at the public hearings were subsequently enhanced through subsequent determinations retrospectively without any hearing. In this context, it is important to note that OGRA is obligated to follow all policy directives issued by the Federal Government. The Federal Government issued the pricing components under policy directive dated 27.7.2015 for RLNG and both parties agree that the role of OGRA is limited to determinations at serial No.1(v) and (vii) of the directive dated 27.7.2015. As per the directive the price components are as follows: No.DGO(AC)-5(235)/15-LNG Government of Pakistan Ministry of Petroleum & Natural Resources, (Policy Wing)
Directorate General of Gas, 21-E, Huma Plaza, Blue Area Islamabad, the 27th July , 2015
01. The Chairman, Oil & Gas Regulatory Authority , Islamabad
02. The Managing Director , Pakistan State Oil Company Ltd. Karachi.
03. The Managing Director , Sui Northern Gas Pipelines Ltd, Lahore
04. The Managing Director , Sui Southern Gas Company Ltd. Karachi Subject: SALE PRICE OF RLNG Dear Sir(s)
I am directed to inform that Economic Coordination Committee (ECC) of the Cabinet in its meeting held on 06.06.2015 while considering a summary submitted by this Ministry on the above subject vide Case No.ECC- 87/11/2015 dated 06.06.2015 approved the following proposals:
(I) Pricing Components for RLNG: i. LNG DES Price including any take or pay volumes, losses on account of Net Sale Proceeds and relevant adjustments due to exchange rate. In case of FOB cargoes, the price should include FOB price plus freight charges. ii. PSO's other imports related actual costs. iii. PSO's Margin upto 4 percent of LNG DES Price, subject to review after three months. iv. Terminal Charges under LNG Service Agreement (LSA). v. SSGCL/SNGPL cost of service (to be determined by OGRA). vi. SSGCL/SNGPL administrative margin upto $ 0.05/MMBTU (to be paid in rupees) for each company (to be treated as non-operating income), subject to review after three months. vii. Transmission losses at 0.5% and distribution losses, if any (to be determined by OGRA).
(II) The RLNG Price will be determined by OGRA and notified by PSO on simila r lines to that for petroleum products pricing including Exchange Rate adjustments. However; RLNG price will be determined on the basis of price of LNG cargoes scheduled to arrive in Pakistan during the relevant month (as against the preceding month's practice in fuels) so that price should reflect the close to actual cost of LNG.
(III) Moreover PSO has been allowed to incorporate any differential between actual versus provisional prices in subsequent pricing period upon availability of all actual costs. This will remove any ambiguity in the pricing mechanism and ensure that the actual and auditable prices are charged to customers.
(IV) Gas infrastructure Development Cess will not be applicable on RLNG.
2. It was also approved by the ECC that a Committee Comprising Secretary Finance Division (Convener), Secretary Ministry of Water & Power , Secretary Ministry of Petroleum & Natural Resources and Secretary Law, Justice & Human Rights to review the pricing mechanism after three months and submit report to ECC for consideration.
3. You are kindly requested to take further necessary action in the implementation of above ECC decision under intimation to this Ministry at the earliest please.
Yours truly , Abdul Rashid Jakhio, Director (T ech) Tele: 9204812 The Federal Government issued another policy directive on 27.6.2016 with reference to price determination of RLNG which is reproduced hereunder: Government of Pakistan Ministry of Petroleum & Natural Resources, (Policy Wing)
Directorate General of Gas, First Floor , Petroleum House, Ataturk Avenue G-5/2 Islamabad, the 27th June, 2016
01. The Chairman, Oil & Gas Regulatory Authority , Islamabad
02. The Managing Director , Pakistan State Oil Company Ltd. Karachi.
03. The Managing Director , Sui Northern Gas Pipelines Ltd, Lahore
04. The Managing Director , Sui Southern Gas Company Ltd.Karachi Subject: DETERMINA TION OF SALE PRICE OF RLNG Dear Sir(s)
I am directed to inform that Economic Coordination Committee (ECC) of the Cabinet in its meeting held on 14.6.2016 considered the summary submitted by this Ministry on the above subject vide Case No.ECC-72/12/2016 dated 14.06.2016 and approved the recommendations of the Committee, constituted by ECC vide case No.ECC- 87/11/2015 dated 06.06.2015, for conveying to OGRA as policy guidelines under Section 21 of the OGRA Ordinance, 2002 as under: i. LNG DES price to be taken as per Contract. ii. Port charges will also be taken at actual including amount reimbursed to supplier as per relevant agreement.
There was a consensus that all relevant cost may be allowed to POA to sustain its operations along with a reasonable profit margin. iii. PSO was advised to take up the matter with Sindh Government for non-applicability of Sindh infrastructure Cess in line with other Petroleum Products'. The Ministry of Petroleum and Natural Resources was also advised to facilitate PSO accordingly . It was also agreed that pending the ultimate settlement of this issue, the said Cess will also be included in RLNG price. iv. PSO margin will be determined at 2.50%. v. All charges under LSA including but not limited to capacity charges and utilization charges as well as Retainage are to be included at actual. SSGC/PSO will share all relevant details with OGRA. vi. SSGC's Margin for LSA Management to be determined @ $ 0.025/MMBTU to be treated as non-operating income. vii. Transmission Loss to be determined and charged at actual subject to a maximum of 0.5% (to be shared by gas companies based on length of Transmission Line involved). viii. Distribution Loss to be determined and charged at actual. The said loss for the customers located on high pressure transmission lines as well as those customers who are willing to lay their dedicated line from SMS/TBS at their own cost shall also be determined and charged at actual. However , for other customers on distribution lines, an actual average UFG for the last financial year will taken in determination.
2. You are kindly requested to take further necessary action in the implementation of above ECC decision under intimation to this Ministry .
Yours truly , Abdul Rashid Jakhio, Director (T ech) Tele: 9204812 As per the directive of 27.6.2016 several changes were introduced, however for the purposes of the dispute before the Court, the Federal Government chan ged the computation requirement from the earlier directive of 27.7.2015 with respect to transmission losses and distribution losses as well as UFG. Relevant components of this policy are
(vii) and (viii) which are to be determined by OGRA.
12. Within the stated legal framework, the supply of RLNG is based on a contractual arrangement between Respondent SNGPL and the Petitioners. As per the agreement RLNG sales are to be ring-fenced in line with the ECC decision made on 9.4.2015 and 23.4.2015 and the seller SNGPL can only supply RLNG to the buyer if it is willing to bear the line losses of the distribution system through the tariff. The agreement also provides that UFG losses shall be borne by the buyer , being the Petitioners, in line with the 2012 Rules. The parties agree that RLNG tariff is to be determined by OGRA and notified by PSO. That the notified price is the provisional price and is subject to change after final determination of RLNG price by OGRA. Furthermore the differential of the provisional and final price must be paid by the buyer , being the Petitioners. Hence in terms of the contractual arrangement the Petitioners are to pay for line losses, UFG and any difference in the provisional tariff and final tariff. It is noted that there is no dispute with reference to the contractual arrangement. the determinations:
13. By way of background OGRA made a provisional determination of RLNG price for the financial year 2015-16 on 7.10.2015. RLNG cost built up and submissions by PSO were considered and evaluated where after OGRA found that the LNG framework suffers from some financial short comings. Firstly the sale purchase agreement with Qatar had not been finalized nor the agreement between PSO and SNGPL and SSGCL nor any agreement with the end consumer . Secondly the price components as given by the Federal Government vide letter dated 27.7.2015 had not been calculated. However the supply of RLNG started in April 2015, therefore it was necessary to provisionally fix the price to prevent an energy shortfa ll and loss to the public exchequer . Hence the provisional price was set considering PSO margin of 4% of DES price and cost of service. At the time OGRA did not allow cost of service because there was no separate RLNG infrastructure and all relevant costs were already built into the revenue requirements for the financial year 2015-1 6 for the indigenous natural gas. Accordingly OGRA denied all requests as there was no incremental cost. The Petitioners contend that subsequently OGRA changed its view with respect to cost of service and losses and granted SNGPL the same without hearing the Petitioners through the impugned determinations. They also claim that once OGRA decided not to allocate any costs, if at all, any costs were to be granted a public hearing was mandatory .
14. The entire dispute between the parties revolves around determinations made during a fixed period and the manner in which proceedings were undertaken by OGRA to fix the price of RLNG. The Petitioners have specifically impugned determinations dated 2.6.2017 and 20.6.2017 on the ground that it revised the earlier tariff fixed for the period 1.7.2016 to 31.12.2016 and 1.1.20 17 to 31.3.2017. They claim that the impugned determinations include a retrospective liability which they are not liable to pay. The Petitioners have also impugned the decision dated 7.10.2016 on account of the change in formula to calculate UFG. They claim that this decision also includes a retrospective liability that they are not liable to pay. Hence the relevant period under dispute is the financial year 2015-16 and 2016-17 and the issue is with respect to OGRA changing its original decision of not allowing cost of service and the change in the computation of UFG which is not based on the 2012 Rules. In order to appreciate the concern of the Petitioners, it is necessary to look at the determinations made by OGRA during this period. A series of determinations were issued by OGRA which are as follows:
(i) 7.10.2015 This sets out the background and the RLNG framework. It refers to the Federal Government approved pricing components vide letter dated 27.7.2015. The determination is made with reference to the months of April, June, July and September 2015. At this time, since the required agreements with Qatar , with PSO and with SNGPL were not in place, a provisional assessment of the price for the said months was made. In this determination, OGRA also observed that a public hearing would prove to be helpful and in the larger public interest.
(ii) 18.3.2016 This fixes the price of RLNG for the period April 2015 to January 2016 . Public hearing was held in December 2015 and January 2016 at Karachi and Lahore respectively . All Pakistan Textile Mills Association, All Pakistan CNG Associations participated along with independent participants and representatives of the general public from different Textile and CNG businesses. All parties were heard and the tariff was fixed for the given period. In this determination, cost of service was not given to the utility companies because at this point they did not have an independent infrastructure for RLNG, hence the Authority decided that since no additional cost had incurred and cost of service had already been allowed in the regular revenue stream for the financial year 2014-2015, they were not entitled to cost of service. The other objections regarding retainage, terminal charges were also heard and computed accordingly .
(iii) 7.10.2016 This determination is made in a Petition filed by PSO seeking price determination period February 2015 to June, 2016. This is again a provisional determination because the relevant agreements were not in place. Cost of service was not allowed. Import related costs were provisionally allowed.
(iv) 10.10.2016 This is the provisional determination for RLNG price for August 2016.
(v) 13.10.2016 This is the provisional price for September 2016.
(vi) 28.10.2016 This is the provisional price for October 2016.
(vii) 2.1.2017 This is the provisional price for December 2016 to January 2017.
(viii) 2.6.2017 This is the provisional price for July to December 2016.
(ix) 20.6.2017 This is the provisional price for January 2017 to March 2017.
Therefore at first glance it is important to note that all decisions are provisional as the basic issues enumerated in para 13 of this judgment continued during this time. Secondly there was one public hearing with reference to the period April 2015 to January 2016 and the subsequent decisions namely 7.10.2016 which has been impugned before this Court, reviewed the decisions of this period and granted certain cost of service, distribution losses and UFG to SNGPL. The other two decisions which have been impugned are 2.6.2016 and 20.6.2016 which relate to the period July to December 2016 and January to March 2017. These are provisional decisions which were finalized on actuals in November 2017 for the financial year 2016-17.
15. The Petitioners claim that RLNG price for the financial year 2015-16 was determined on 18.3.2016 after public hearings in Karachi and Lahore. This price was changed on 7.10.2016, 2.6.2017 and 20.6.2017 without any hearing. Essentially they are aggrieved with the basis for calculating distribution and transmission losses and cost of services. Consequently they argue that since the determinations were made without hearing them, they are not liable to pay the increased amounts which have been applied retrospectively . It is noted that during this time the RLNG pricing system was evolving as there was no fixed infrastructure for RLNG and as the RLNG system developed, the cost and losses were being considered simultaneously . As per the procedure followed a provisional price for RLNG is notified every month, however cost of supply , retainage and transmission and distribution losses cannot be determined on a monthly basis. This has to be done on a yearly basis when these costs are actualized and made available. At the time when the actual figures are made available the provisional price is revised and a final determination is made based on actual costs. This system will have a retrospective application as the differential is added to the provisional price and has to be paid by the Petitioners for the relevant period. The Petitioners are aware of the framework catering to provisional and final determinations as this was agreed to in their contracts for supply of RLNG. They also agreed that monthly pricing has to be provisional. During the course of arguments the Petitioners stated that they do not object to the provisional billing as their concern is limited to the cost of service and UFG granted by OGRA which should be made after a public hearing. OGRA argues that it is not required to grant a public hearing as the impugned determinations are provisional which does not call for a public hearing. The Respondent OGRA informed the Court through its Counsel that there was a public hearing for the 18.3.2018 determination. The Petitioners? concerns were heard and have been noted. Furthermore remedy of review under Section 13 of the 2002 Ordinance is available and has been availed by the Petitioner APTMA against decisions it was aggrieved by. Hence they contend that the remedy of review caters to the objectives of the right of hearing required by the Petitioners as all issues can be addressed in the review petition. Even otherwise they contend that the Petitioners have participated in the public hearing held on 28.12.2015 and 4.1.2016 at Karachi and Lahore for the 18.3.2018 determination and have not challenged any of the subsequent price determinations which are based on the government directive of 27.6.2016. The Counsel explained that the OGRA is required to follow all government directives issued under Section 21 of the 2002 Ordinance and that all subsequent determinations are based on 27.6.2016 directive. She further explained that the Federal Govern ment changed its earlier directive of 27.7.2015 with the directive issued on 27.6.2016 consequent to which the methodology to compute distribution and transmission losses and UFG was changed. Since they were provisional determinations they were actualized subsequently on 23.11.2017 based on the 27.6.2016 directive which decision has not been challenged. Therefore the financial year 2015-16 and 2016-17 stand closed and finalized for all intents and purposes. the right to public hearing:
16. Notwithstanding the arguments made on behalf of OGRA, the argument of the Petitioners with respect to the right of hearing must be seen in the context of the tariff determination process set up by the Federal Government and followed by OGRA. The tariff determination of 7.10.2015 denied cost of service to SNGPL as there was no infrastructure to service RLNG and because RLNG was being supplied through the existing transmission and distribution system. Consequently OGRA concluded that since SNGPL was not incurring any RLNG related cost of service it could not claim any. This position was maintained by Respondent OGRA on 18.3.2016 which decision was made on the basis of a public hearing. However , on 7.10.2016 in a review petition filed under Section 13 of the 2002 Ordinance by PSO and SNGPL cost of services was included, without notice of hearing to the Petitioners, who had participated in the public hearing for the 18.3.2016 determination. The relevant period was April 2016 to February 2017 in both determinations. Hence a dispute arose as determination of 7.10.2016 allowed certain costs to SNGPL based on actual figures without hearing the Petitioners and OGRA maintained this position in its subsequent decisions of 2.6.2017 and 20.6.2017 without notice to the Petitione rs. The record shows that the decisions of 2.6.2017 and 20.6.2017 were provisional and actualized on 23.11.2017 and duly notified. This decision is not challenged nor was any review filed by the Petitioners. However the Petition ers argue that the cost of losses allowed by OGRA directly and adversely affect their rights, hence a hearing is mandatory . It is important to note that the determination of 7.10.2016 was made on the basis of the directive of 27.6.20 16 based on the actual figures available at the time whereas the earlier determination of 7.10.2015 and 18.3.2016 was based on the directive dated 27.7.2015. Since the computation of the price components were changed by the Federal Government, its application was bound to give rise to a dispute, as the Petitioners could not participate in the proceedings where the 27.6.2016 directive was applied. Therefore the question before the Court is whether OGRA is required to grant a hearing every time it determines cost of services or losses in terms of the letter of 27.7.2015 and 27.6.2016 and whether it is required to grant a hearing with the change in policy directive under Section 21 of the 2002 Ordinance.
17. As per the RLNG supply agreements between the parties, the provisional price of RLNG will be fixed every month and this price is subject to change when the final determination is made . The parties agree that cost of service, transportation cost and retainage component has to be on actual basis in any financial year. Since cost of services and transmission and distribution losses is based on actuals, every determination made by OGRA will impact the Petitioners. To cater to such impact, Section 9 of the 2002 Ordinance provides that a right of hearing should be granted where a decision will directly and adversely affect the rights of a person . This is the concept of a public hearing which is followed in the tarif f determination process for natural gas.
18. A public hearing is granted to make the tariff determination process all inclusive so that the views of interested parties can be taken into consideration, especially those who have stakes in the outcome of the regulator's decision. It ensures accountability and transparency in the decision making proce ss and will positively impact the implementation of the regulator's decisions. Hence, it is also the first step towards future conflict management with respect to the regulator's decision. The more inclusive the process, the less likely it will be that the determination is challenged. Furthermore, the involvemen t of the public and the stakeholders creates trust and confidence in the decision making process which caters to acceptability of the decision and its reasons. In the context of the 2002 Ordinance, this right of public hearing is provided for in Section 9 which requires a hearing to be granted where a decision relating to regulated activity may directly and adversely affect the rights of a person. OGRA has taken the stance that there is no right of hearing in the RLNG price determination mechanism but public hearings are a regular feature of the regular tariff determination framework. This position of OGRA is negated by Section 9 of the 2002 Ordinance which requires a hearing to be given where the decision impacts the rights of persons.
Furthermore it is admittedly a regular feature of the tariff determination framework for indigenous gas and as per the RLNG price determinations placed before the Court OGRA observes that it is in the public interest that a public hearing be granted.
19. There are two reasons why this right of hearing is required in the RLNG price determination process. Firstly the entire RLNG sector is governed by contracts and government policies along with the delegated function granted to OGRA. While there is a contractual relationship setting the terms and conditions between the parties inter se being the Petitioners and SNGPL and SNGPL and PSO. The Federal Government issues policy directives with respect to RLNG allocation and price which directives are subject to change as per Government requirements. OGRA's determinations are based on the Government's notifications or policy guidelines under Section 21 of the 2002 Ordinance which means that it has to take all such components, as directed by the Government, into consideration while making its determination. Hence any change that a government policy directive makes will be implemented by OGRA. Stakeholders such as SNGPL and PSO are heard at the provisional determinations where the directives are applied but the majority stakeholders being the consumers or interveners are not heard. This is because during the provisional pricing PSO and SNGPL are heard and the public is not involved. The second reason is with respect to the right to review a decision under Section 13 of the 2002 Ordinance. It is noted that within the given framework when a review application is filed and the cost of services or transmission losses or distribution losses are reviewed and changed without hearin g parties, it leaves the Petitioners remediless as there is no provision for a second review under the 2002 Ordinance. Essentially under Section 13 of the 2002 Ordinance, the Petitioners can dilute the impact of public hearings if the public is not heard in the review proceedings. In the event that PSO or SNGPL moves for a review of any determination, no public notice is given. Consequently the determinations may decide upon cost of services and transmission and distribution losses without hearing the public who was originally heard during a public hearing. A relevant fact on this point with reference to the cases before the Court is that the tariff for April 2015 to January 2016 was decided after a public hearing on 18.3.2016 yet in the decision of 7.10.2016 the tariff for the same period was reviewed and OGRA which had earlier not granted costs and losses now computed transmission losses and cost of service as per the policy directive of 27.6.2016. Having done so the decision of 7.10.2016 directly and advers ely affected the rights of the Petitioners yet they were not heard. In this regard, it is also argued that the policy directive issued on 27.6.2016 under Section 21 of the 2002 Ordinance as per the contentions of the Petitioners was a total departure from the settled terms between the parties which again qualifies for a reason to grant a hearing.
20. In the same context, another issue raised by the Petitioners was the change in the computation mechanism for UFG consequent to the government directive of 27.6.2016. As per the contractual arrangement UFG must be decided as per 2012 Rules. The Petitioners contend that UFG allowance was changed from the just and reasonable allowance as per the 2012 Rules which is a 4.5% allowance to a 9.21% allowance by changing the computation mechanism on 27.6.2016 and by not following the 2012 Rules. Again they re-iterated that each time the government issues a new scheme for computation, the Petitioners being stakeholders must be heard at the time of the determination. Therefore the concerns raised by the Petitioners in this regard have merit, as the change in policy resulted in an overall change in the UFG computation scheme.
21. There is no dispute between the parties that the 2002 Ordinance is applicable as OGRA acts under Section 6(2)(r) of the 2002 Ordinance and follows directives under Section 21 of the 2002 Ordinance. Hence in order to preserve the scheme of the 2002 Ordinance, OGRA in the tariff determination process for RLNG, must as far as practicable, protect the interest of the consumers and the stakeholders so far as RLNG pricing is concerned. A public hearing is necessary where OGRA has to make a determination on cost of services and UFG as they directly impact the Petitioners. Furthermore Section 9 of the 2002 Ordinance mandates such a hearing and OGRA itself agrees that it is in the public interest. While the elements of the price components and its calculation is a technical function for OGRA to decide on the basis of government directives, the RLNG pricing mechanism has not been streamlined into a regular process where provisional and final determinations are systematically made and notified.
Hence it is necessary to keep all partie s on board so as to ensure smooth management of the terms of the agreement between the parties and the supply of RLNG. It is also necessary to give clarity to the pricing mechanism so as to reduce conflict between OGRA and the public.
22. As per the contentions raised it is admitted that decisions based on the 27.6.2016 directive have not been challenged. It is also admitted that after the impugned decisions of 7.10.2016 , 2.6.2017 and 20.6.2017, the actualization of the prices for the financial year 2016-17 was made on 23.11.2017. Even this determination has not been challenged. The Petitioners on the filing of the Petitions were granted interim relief with respect to the differential amounts on account of the 7.10.2016, 2.6.2017 and 20.6.2017 determ inations. The Petitioners did not get a hearing for the 7.10.2016 determination, when OGRA changed its earlier decisions of not granting costs, to allowing certain costs of service. Further more the computation for UFG was also changed and re-determined as per the 27.6.22016 directive without granting any hearing to the Petitioners. Therefore in the interest of justice and to protect the rights of the Petitioners with respect to being heard, in the form of a public hearing, OGRA is required to hold a public hearing to resolve the computation issues related to UFG and cost of services. This public hearing is also necessary as the Petitioners have been granted interim relief with respect to the differential amounts which need to be adjusted. Therefore before any adjustments are made a public hearing is required.
23. This Court is mindful of the decision in WP No.1821/2017 dated 8.2.2017 titled Mayfair Limited etc v.
Federation of Pakistan etc. At the time the petitioners in that case challenged the determinations made by OGRA with respect to UFG for being made witho ut hearing the Petitioners. The Court held that RLNG and its tariff fixation is based on a contractual arrangement and that the parties agreed to pay UFG and cost of supply in respect of RLNG. So far as the right of hearing was concerned, the Court held that the petitioners could not establish that they were entitled to a monthly hearing. Since the passing of the said judgment and now a lot of features of the regulatory regime have evolved and the dispute has been narrowed down to the right of hearing at the time of actualization of the price components to be determined by OGRA. In this regard even OGRA in its determination has observed that a right of hearing should be given in the RLNG pricing regime.
24. Moving forward OGRA should streamline the RLNG process providing provisional pricing and possibly a quarterly or bi-annual determination based on actual costs and losses. This quarterly or bi-annual determination should be on the basis of a public hearing so as to improve efficiency in the pricing mechanism. Essentially the right of hearing should be granted where the determination will impact the final outcome of all provisional adjustments made. Once the process is streamlined and the costing of components is settled, the issues related to costs and services should also settle.
25. One of the primary functions of OGRA is to provide for prices for petroleum products where it has been delegated to OGRA by the Federal Government. The establishment of prices as per Section 6(2)(r) of the 2002 Ordinance is subject to Section 21 and any existing contract or agreement specifying prices. In cases of RLNG price, there are Federal Government directives and contracts between the parties, the terms of which are relevant and need consideration. In the event of any conflict between the terms of the contract and the Government directive OGRA must attempt to resolve the matter by referring the issue to the Federal Government for clarification or re-consideration. However it cannot simply rely on government directives under Section 21 and ignore the contractual arrangement as that goes against the mandate of Section 6(2)(r) of the 2002 Ordinance. In such cases OGRA is obligated to resolve the issues as a frontline regulator and not mitigate its functions as a government delegatee.
26. Therefore in view of the aforesaid, all the Petitions are allowed on the following terms: i) The RLNG price determinations by OGRA, at the time of actualization of the prices, for a given financial year, should be done after holding a public hearing in terms of Section 9 of the 2002 Ordinance; ii) Where a determination is made after granting a public hearing, in the event that OGRA reviews or re-hears any portion of that determination, which will directly and adversely impact the rights of the Petitioners, it will grant a right of hearing before making a decision under Section 13 of the 2002 Ordinance; iii) For the purposes of the impugned determination of 7.10.2016, 2.6.2017 and 20.6.2017, interim orders have been passed by this Court on account of which adjustments are required to finalize the amounts due from the Petitioners. OGRA is directed to fix a public hearing before issuing revised bills, in order to hear and determine on the objections raised by the Petitioners with reference to UFG, cost of services and transmission and distribution losses.