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Petitioner: Karam Ceramics Ltd & others VS Respondent: Federation of Pakistan & Others
Court Name: Sindh High Court Judge(s): Adnan Iqbal Chaudhry Title: Karam Ceramics Ltd & others vs Federation of Pakistan & Others Case No.: Suit No. 1803 of 2020 Date of Judgment:2023-02-18 Reported As: 2023 SHC 80 Result: Suit Dismissed
JUDGMENT
JUDGMENT Adnan Iqbal Chaudhry J. - The Plaintiffs operate industrial units which utilize natural gas through the distribution network of the Sui Southern Gas Company Ltd. under contracts of gas-supply. Some of the Plaintiffs use natural gas in their manufacturing process and some also use natural gas to generate electricity. In Suit No. 1800/2020 and Suit No. 1801/2020, some of the Plaintiffs operate more than one industrial unit, one supplied gas by the Sui Southern Gas Company Ltd. [SSGC] and the other by the Sui Northern Gas Pipeline Ltd. [SNGPL] Suits of Set-II, Set-IIA and Set-IIB 2. By Notification No. OGRA-10-3(8)/2020 dated 23-10-2020, issued under section 8(3) of the Oil and Gas Regulatory Authority Ordinance, 2002 [OGRA Ordinance], the Oil and Gas Regulatory Authority [OGRA] notified the tariff of natural gas for retail consumers [impugned gas-tariff notification]. For General Industrial consumers the tariff was increased from Rs. 1021 to Rs. 1054 per MMBTU, and for Captive Power (General Industry) it was increased from Rs. 1021 to Rs. 1087 per MMBTU. The suits of Set-II challenge the vires of said gas-tariff as applicable to General Industrial consumers and Captive Power (General Industry). In the suits of Set-IIA, the issue is to the definition of Captive Power Plant [CPP] given in the impugned gas-tariff. These Plaintiffs contend that it is unlawful to include within that definition those industrial consumers who use gas for generating electricity only for self-consumption and do not sell such electricity onwards, and consequently that such consumers cannot be charged the higher tariff for a CPP. The suits of Set-IIB challenge both the vires of the gas-tariff and the definition of CPP therein. Suits of Set-I and Set-IA
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3. On 21-01-2021, the Cabinet Committee on Energy [CCoE] decided to impose a moratorium on the supply of natural gas to CPPs. The suits of Set-I challenge that decision [impugned moratorium] and pray for following declarations with consequential relief: that the moratorium is not applicable to those industrial consumers who use gas to generate electricity only for self-consumption and not for its sale; alternatively, that it is unlawful to categorize such consumers as CPPs; and that the moratorium is otherwise unlawful. Amongst the suits of Set-I, the Plaintiffs of Suit No.970/2021 and Suit No.978/2021 are export oriented industries, which are bifurcated in the gas-tariff as Export Oriented (General Industry) and Export Oriented (Captive) . The latter of course also use gas to generate electricity for self-consumption and therefore have the same case as the other plaintiffs of Set-I for challenging the moratorium. Amongst the suits of Set-I, the Plaintiffs of Suit No.668/2021 and Suit No.659/2021 are operating CNG stations. Apart from the gas used for CNG, they also use gas for generating electricity for self- consumption in running the station. The moratorium is on the latter use of gas. Therefore, these Plaintiffs too have the same case as the other plaintiffs of Set-I. There are then the suits of Set-IA (Suit No.s 589/2021, 651/2021 and 673/2021) where the Plaintiffs use gas to generate electricity exclusively for onward sale and not for self-consumption. They contend that they too cannot be categorized as CPPs as the definition thereof entails that the electricity so generated is used primarily for self-consumption, and consequently the moratorium cannot be extended to them as well. Thus, as in the suits of Set-IIA, the definition of 'Captive Power Plant' given in the impugned gas- tariff is the central issue also in the suits of Set-I and Set-IA. Scheme for determining the gas-tariff for retail consumers 4. To give context to the pleadings, issues and submissions of learned counsel, it is expedient to first narrate the scheme for determining the gas-tariff for retail consumers as it existed on or before the impugned gas-tariff dated 23-10-2020. 4.1 The mechanism for determining the gas-tariff for retail consumers is set-out in section 8 of the OGRA Ordinance and the Natural Gas Tariff Rules 2002 [Tariff Rules]. The structure of the tariff is based on the 'total revenue requirement' of the licensee (SSGC/SNGPL). Per section 8(6)(h) of the Ordinance, "total revenue requirement means for each financial year, that total amount of revenue determined by the Authority for each licensee for natural gas so as to ensure it achieves the rate of return provided in its license for natural gas." 4.2 Rule 4(2) of the Tariff Rules requires the licensee to file a petition with OGRA by 1st December each year so as to enable OGRA to "estimate" the licensee's total revenue requirement for one financial year or more. Such estimate, which is also referred to by OGRA as 'ERR', is determined under section 8(1) of the Ordinance read with Rule 18(1) of the Tariff Rules, and on that basis the OGRA is required, no later than 3 days, to advise the Federal Government the "prescribed price of natural gas for each category of retail consumer for natural gas". As per section 8(6) of the Ordinance: "(a) 'category of retail consumer for natural gas' means a category of retail consumers for natural gas designated as such by the order of the Federal Government;" "(f) 'prescribed price' means the amount under this section, which represents the amount a licensee for natural gas would be entitled to receive from each category of its retail consumer for natural gas in order to achieve its total revenue requirement." 4.3 Since determination under section 8(1) of the Ordinance is only an 'estimate' of the total revenue requirement of the licensee for that financial year, section 8(2) read with Rule 4(3) requires the licensee to file another petition, apparently at the end of that financial year, so as to enable OGRA to review the total revenue requirement of the licensee after incorporating the actual changes in the well-head prices and other relevant factors[1], and to determine the licensee's
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revised total revenue requirement for that financial year, also referred to by OGRA as 'FRR'. Thereupon, no later than 3 days, the OGRA is required by section 8(2) read with Rule 18(1) to advise the Federal Government the "revised prescribed prices for the licensee for natural gas". 4.4 On receiving the prescribed price from OGRA under section 8(1) of the Ordinance, or the revised prescribed price under section 8(2), as the case may be, section 8(3) read with Rule 18(2) stipulates that the Federal Government shall within forty [40] days "advise the Authority (OGRA) of minimum charges and the sale price for each category of retail consumer for natural gas for notification in the official Gazette by the Authority of the prescribed price as determined in sub- sections (1) and (2), the minimum charges and the sale prices for each category of retail consumers for natural gas."[2] "Sale Price" is defined by section 8(6)(g) of the Ordinance to mean the price at which the licensee is authorized to sell natural gas to consumers. 4.5 If the Federal Government does not advise the sale price of gas to OGRA within 40 days as required by section 8(3) of the Ordinance, AND if the prescribed price determined by OGRA for any category of consumer under sections 8(1) or 8(2) is higher than the last notified sale price for that category of consumer, then section 8(4) read with Rule 18(4) requires OGRA to notify the higher prescribed price as the sale price of gas.[3] 4.6 A shortfall in the licenses total revenue requirement for a financial year is carried forward by it in the petition for revenue requirement for the next financial year, and adjustments required to be made for the previous financial year are addressed by OGRA in determining the revenue requirement of the licensee for the next financial year.[4] 4.7 The scheme of tariff determination, to the extent of the prescribed price of gas, allows for consumer participation. Therefore, upon admitting a petition of a licensee for revenue requirement, the OGRA may under Rule 5(4) of the Tariff Rules issue notice, including notice by publication to "all persons affected by or interested in the petition, who in the opinion of the Authority are likely to be effected or interested". Under Rule 7, the OGRA may grant leave to intervene to any interested person who desires to participate in the proceedings. Under Rule 10, the OGRA may hold a hearing of the petition. 4.8 As per sections 2(xxxix) and 7(1), read with section 2(xxvi) of the OGRA Ordinance, any tariff determined or approved by OGRA under the Ordinance is subject to the policy guidelines of the Federal Government. Section 21 of the Ordinance empowers the Federal Government to issue such policy guidelines. 4.9 It is the policy of the Federal Government to keep the sale price of gas for certain consumers at the lowest, such as Domestic Consumers and Special Commercial Consumers (Roti Tandoors). That is done by giving a cross-subsidy to them at the cost of other categories of consumers as envisaged in Rule 17(1)(b) of the Tariff Rules. Rule 17 of the Tariff Rules highlights the criteria for determining the gas-tariff. 4.10 Section 8(5) of the Ordinance requires each licensee to pay to the Federal Government a "development surcharge" in respect of each unit of gas sold. Per section 8(6)(b) of the Ordinance, "development surcharge means the amount payable by each licensee for natural gas and calculated in accordance with the rules and which represent, in respect of each category of retail consumer for natural gas to which it is applicable, the amount, if any, by which the sale price exceeds the prescribed price."[5] Issues 5. In challenging the gas-tariff dated 23-10-2020, some of the Plaintiffs had also taken the ground that in view of Article 154 of the Constitution of Pakistan, the sale price of gas could not have been fixed by the Federal Government without the concurrence of the Council of Common Interests. Since that issue has already been decided in the negative by this Bench in Shujabad Agro Industries (Pvt.) Ltd. v. Federation of Pakistan (SBLR 2022 Sindh 1585), albeit presently suspended
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in appeal before a Division Bench, learned counsel for the Plaintiffs did not agitate that ground here for settlement of issues. With facts and documents admitted and with consent of all learned counsel, all of these suits were heard for final determination on issues of law recorded in the leading Suit No. 1803/2020 vide orders dated 25-01 2022, 07-03-2022 and 14-03-2022. Those issues are renumbered as follows: (i) Whether the gas-tariff notification dated 23-10-2020 has been determined in violation of sections 7 and 8 of the OGRA Ordinance, 2002 and/or Rule 18 of the Natural Gas Tariff Rules, 2002 ? If so, to what effect ? (ii) Whether the increase in the sale price of gas under the gas-tariff dated 23-10-2020 is confiscatory ? If so, to what effect ? (iii) Whether the provision for development surcharge' under section 8 of the OGRA Ordinance, 2002 is without guidelines and amounts to excessive delegation of legislative power ? If so, to what effect ? (iv) Whether notification dated 23-11-2020 for provisional (category-wise) prescribed price issued by OGRA under section 8(3) of the OGRA Ordinance, 2002 is arbitrary and/or without lawful authority ? (v) Whether the impugned gas-tariff notification dated 23-10-2020 cannot be applied retrospectively ? (vi) Where the Plaintiffs use gas for generation of electricity for self-consumption and not for its sale, whether their classification as Captive Power (General Industry)' in the gas-tariff dated 23- 10-2020 is contrary to the judgment of the Supreme Court in C.A. No.159-214 of 2018, the provisions of the Regulation of Generation, Transmission & Distribution of Electric Power Act, 1997, and/or infringes Articles 18 and 25 of the Constitution ? If so, to what effect ? (vii) Whether the CCoE's moratorium decision dated 21-01-2021 is applicable to the Plaintiffs who use gas for generation of electricity for self-consumption and not for its sale ? If so, whether that decision is hit by the doctrine of promissory estoppel, or other-wise by the law stated in issue No. (vi) above ? (viii) Whether the Plaintiffs who are engaged in production of power for onward supply to other entities without any self-consumption can be categorized as Captive Power Producers' ? (ix) To what relief, if any, are the Plaintiffs entitled to ? and what should the decree be ? Submissions on gas-tariff vires 6. On the vires of the impugned gas-tariff, submissions on behalf of the Plaintiffs were led by Mr. Abid S. Zuberi, Mr. Owais Ali Shah and Mr. Rashid Anwar Advocates. Other learned counsel adopted the same. The submissions were as follows: (i) that when OGRA's decision dated 14-07-2020 was that the average prescribed price of gas should be revised downwards, the increase in the sale price of gas had no basis; and that such increase was arbitrary and confiscatory; (ii) that the sale price of gas had been increased only to generate development surcharge for the Federal Government; that the OGRA Ordinance, the Tariff Rules and the Natural Gas (Development Surcharge) Ordinance, 1967 did not provide any criteria for development surcharge, and therefore it was excessive delegation of legislative power; and that the raising of revenue for the Federal Government was not criteria for determining the gas-tariff under sections 7 and 8 of the Ordinance; (iii) that OGRA's decision dated 14-07-2020 had determined only the average' prescribed price of gas and not the prescribed price for each category of retail consumer' as required by section 8(1) of the OGRA Ordinance and Rule 18(1) of the Tariff Rules; resultantly, the Federal Government could not have advised any sale price of gas, in that the latter is linked to and dependent upon the former;
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(iv) that ex post facto notification dated 23-11-2020 issued by OGRA to notify the category-wise prescribed price of gas was contrary to section 8 of the OGRA Ordinance; that in effect, OGRA had surrendered to the Federal Government its statutory function of determining the category-wise prescribed price; (v) that the Federal Government's advice dated 22-10-2020 to notify the sale price of gas had come much after the period of 40 days fixed for such purpose in section 8(3) of the OGRA Ordinance; that said time-line was mandatory, and on the expiry thereof the Federal Government had become functus officio for advising the sale price of gas; thus the impugned gas-tariff was without jurisdiction; (vi) that the impugned gas-tariff cannot be given effect retrospectively as held in the case of Sindh Petroleum & CNG Dealers Association (2020 CLC 851); that costing of products by industrial consumers is on the existing/notified price of gas, and therefore fixing the sale price of gas retrospectively is to their detriment; (vii) for the submission that the time-line of 40-days in section 8(3) of the Ordinance was mandatory, learned counsel relied on Pakistan Beverage (Pvt.) Ltd. v. Federation of Pakistan (SBLR 2016 Sindh 1268), and the judgment of the Division Bench of this Court in appeal in Sui Southern Gas Company Ltd. v. Federation of Pakistan (PLD 2017 Sindh 733). Regards the latter Division Bench judgment of this Court in Sindh Petroleum & CNG Dealers Association v. Federation of Pakistan (2020 CLC 851), which had held that such time-line was not mandatory but only directory, learned counsel submitted to that extent the latter judgment was per incuriam as the latter Division Bench was bound by the earlier Division Bench as held in Ardeshir Cowasjee v. KBCA (PLD 1999 SCMR 2883). 7. For the Defendants, submissions were led by Mr. Ijaz Ahmed, learned counsel for the SSGC, with additional submissions by Mr. Asim Iqbal, learned counsel for OGRA, and Mr. Bilal Khilji, learned Assistant Attorney General on notice under Order XVII-A CPC. Their submissions were as follows: (i) that the impugned gas-tariff was notified by OGRA pursuant to the advice of the Federal Government under section 8(3) of the OGRA Ordinance, given vide letter dated 22-10-2020, and after the same had been ratified by the Federal Cabinet on 06-10-2020; (ii) that though such advice was delayed by 58 days or so, the time-line prescribed in section 8(3) of the Ordinance was not mandatory but only directory as held in Sindh Petroleum & CNG Dealers Association (2020 CLC 851); that the earlier Division Bench judgment (PLD 2017 Sindh 733) had not given any finding on the effect of such time-line, and thus the question of conflicting judgments did not arise; (iii) that the determination of category-wise prescribed price was only a calculation exercise, the absence of which did not prejudice the Plaintiffs and did not vitiate the proceedings; that in any case, by a subsequent notification dated 23-11-2020 the OGRA had also notified the category-wise prescribed price; (iv) that the Plaintiffs had not challenged the prescribed price determined by OGRA, but only the sale price of gas determined by the Federal Government; that fixation of the sale price of gas was a matter of Government policy, a matter beyond judicial intervention; (v) that regards the development surcharge, the Plaintiffs have not challenged the vires of section 8(6) of the OGRA Ordinance, and therefore the argument that it was excessive delegation of legislative power is pointless; that the development surcharge is eventually passed on to the Provinces under President Order No.1/1991 and under Article 160 of the Constitution of Pakistan; (vi) that any increase in the sale price of gas cannot be termed as confiscatory because under Article 172(3) of the Constitution of Pakistan natural gas is the property of the Federation and the Province concerned, and the gas-tariff is the price of such property;
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(vii) that since the impugned gas-tariff was based on computations relating to a certain time period, it was made applicable retrospectively to cover that time-period; that retrospective effect of a notification can only be questioned where vested rights are affected, whereas the Plaintiffs cannot claim any vested right in the gas-tariff. Submissions on Captive Power definition 8. As to the definition of a 'Captive Power Plant' [CPP], submission on behalf of the Plaintiffs were led by Mr. Ayan Mustafa Memon, with Mr. Annas Makhdoom and Mr. Raashid Anwer making additional submissions as follows: (i) that though the Plaintiffs of Set-IIA and Set-IIB use gas also for generating electricity, but that is only for self-consumption and not for sale; that such consumers were held not to be captive power by the Supreme Court vide judgment dated 10-05-2019 in Civil Appeals No.159-L to 214-L of 2018 titled Sui Northern Gas Pipelines Limited, Lahore v. Bulleh Shah Packaging (Pvt.) Ltd. [Bulleh Shah], followed by this Court in Quetta Textile Mills Ltd. v. Federation of Pakistan (2020 CLC 1414); (ii) that in any case, the definition of 'CPP' in the impugned gas-tariff does not follow the guidelines laid down by the Supreme Court in Bulleh Shah; that the test of 'core business' laid down in Bulleh Shah had nonetheless to be applied; that unless the Plaintiffs are granted a license to generate electricity under the NEPRA Act, 1997, they are not CPPs under said Act, and consequently, they cannot be categorized as CPPs under the OGRA Ordinance; (iii) that even after the definition of CPP in the impugned gas-tariff, the OGRA itself had held vide decision dated 26-02-2021 that the definition of a CPP shall continue to be as per Bulleh Shah; (iv) that under section 8(6)(a) of the OGRA Ordinance, it was the Federal Government, not OGRA, who had to define a 'CPP', and therefore the impugned definition issued by OGRA was without jurisdiction. 9. Mr. Ijaz Ahmed, learned counsel for the SSGC replied that the case of Bulleh Shah was not relevant to these suits as manifest from the order passed on review petitions there against; that in Bulleh Shah, industrial consumers before the Court were allowed only one gas connection under a contract for industrial use, whereas the Plaintiffs here have more than one gas connection, both for industrial use as well as for power generation and under separate contracts; that it is the connection for power generation that is categorized as CPP; that Bulleh Shah dealt with the situation where no definition of CPP was available in the OGRA regime; that after the definition in the OGRA regime, a definition cannot be imported from the NEPRA regime, and in that regard he cited Mukhtar Hussain Shah v. Saba Imtiaz (PLD 2011 SC 260). 10. Mr. Kashif Hanif, learned counsel for the SSGC in other suits, submitted that the definition of CPP' in the impugned gas-tariff had not been settled by OGRA but by the Federal Government pursuant to the judgment in Bulleh Shah. In that regard he placed on the record letter dated 29-06-2019 issued by the Ministry of Energy, Petroleum Division. He pointed out that the definition of CPP in Regulation 2(k) of the NEPRA Regulations, 1999 has since been amended. He submitted that the increase in the sale price of gas for CPPs was a policy decision by the Federal Government, and relied on Shujabad Agro Industries (Pvt.) Ltd. v. Federation of Pakistan (SBLR 2022 Sindh 1585) to submit that the present suits bring no ground to interfere with such policy. Mr. Furqan Ali, learned counsel for the SNGPL, adopted these submissions. The learned Assistant Attorney General further submitted that after the definition of CPP was provided by the Federal Government in the gas-tariff, OGRA's decision dated 26-02-2021 where it continues to define CPP as per Bulleh Shah, is erroneous and without jurisdiction. Submissions on the impugned moratorium on CPPs 11. Regards the suits of Set-I which challenged the moratorium dated 21-01-2021 on the supply of gas to CPPs, the first leg of submissions on behalf of the Plaintiffs, made by Mr. Raashid Anwer
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Advocate, were the same as for the plaintiffs of Set-IIA, viz that a CPP is to be defined as per Bulleh Shah. The other leg of his submission was that the CCoE was not competent to unilaterally order gas closure and override gas-supply contracts; that the moratorium was without assigning reasons and not backed by any law; that it was the Federal Government itself that had earlier encouraged the Plaintiffs to invest in gas generators for fuel, and after the Plaintiffs had acted to their detriment, the impugned moratorium was barred by promissory estoppel; and that the K- Electric does not have adequate electricity nor the distribution network to meet the electricity requirements of the Plaintiffs. All other learned counsel representing the Plaintiffs adopted these submissions. With regards to the suits of Set-IA, where the Plaintiffs claim to use gas to generate electricity exclusively for onward sale, Mr. Raashid Anwer Advocate submitted that they too cannot categorized as CPPs for they do not meet the primary test of self-consumption as per the case of Bulleh Shah. He submitted that though NEPRA had categorized these Plaintiffs as isolated generation companies' who do not need a distribution license, they actually fall within the category of Independent Power Producers [IPPs]; that the question whether they were IPPs or CPPs or simply General Industrial consumers, was pending before the Supreme Court in Civil Appeal No. 856/2017 where an interim order was operating directing that these Plaintiffs be billed as General Industrial consumers. He submitted that the moratorium was a fait accompli for the Plaintiffs who use gas to generate electricity for onward sale. 12. Responding to the suits of Set-I and Set-IA, Mr. Kashif Hanif, Mr. Furqan Ali Advocates and the learned Assistant Attorney General submitted that the CCoE's decision to impose the moratorium was a policy matter, made in view of depleting gas reserves and to give priority to domestic consumers; that the same had been ratified by the Federal Government; that in matters of Government policy the Courts do not usually interfere; and that the argument of promissory estoppel is unsubstantiated. Reliance was placed on Shujabad Agro Industries (Pvt.) Ltd. v. Federation of Pakistan (SBLR 2022 Sindh 1585). Regards the suits of Set-IA, attention was drawn to Bhanero Energy Ltd. v. SSGC Ltd. (PLD 2017 Sindh 520) and judgment in appeal reported as Olympia Power Generation (Pvt.) Ltd. v. SSGC Ltd. (PLD 2017 Sindh 73), were it had been held that these Plaintiffs were CPPs, not IPPs. Opinion of the Court Issue No.(i): Whether the gas-tariff notification dated…
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