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Petitioner: (SSGCL) through Deputy Chief Manager VS Respondent: OIL AND GAS REGULATORY JUDGMENT
Court Name: Sindh High Court Judge(s): Muhammad Shafi Siddiqui Title:(SSGCL) through Deputy Chief Manager vs OIL AND GAS REGULATORY
JUDGMENT
Reported As: PLD 2017 Sindh 567 Result: Petitions dismissed Judgment JUDGMENT MOHAMMAD SHAFI SIDDIQUI, J.--These are six petitions under section 12(2) of Oil and Gas Regulatory Authority Ordinance, 2002 (hereinafter referred to as Ordinance 2002) filed by Sui Southern Gas Company Limited against its regulator OGRA in which, amongst others, applications under Order I, Rule 10, C.P.C. filed by different individuals/ entity are also filed. 2. Before proceeding with the case of the petitioner and respondents on merit, it is necessary for me to decide applications under Order I, Rule 10, C.P.C. filed by the interveners/applicants. 3. It is the case of applicants/intervenes that they have filed these applications in dual capacity i.e. being shareholders and consumers. Learned counsel appearing for the intervenes/applicants submitted that they may not be aggrieved of the determination of OGRA insofar as tariff and the UFG Benchmark is concerned, however applicants would be directly affected with the outcome of these proceedings and hence per learned counsel application deserved to be granted and the applicants be imp leaded as petitioners and/or respondents. 4. Learned counsel for respondent No.1 on the other hand has vehemently opposed the applications. He submitted that Order I, rule 10, C.P.C. has to be considered minutely while deciding these applications. Rule 10(2) provides that the name of any person who ought to have been joined whether as plaintiff or defendant, or whose presence before the Court may be necessary in order fo enable the Court factually and completely to adjudicate upon and settle questions involved in the suit, be added. He submitted that the applicants do not come in the frame in any form. 5. On merit counsel for respondent No.1 submitted that as a shareholder the applicants are bound by the decision of the Board of Directors of the company and as being consumers their
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applications under Order I, Rule 10, C.P.C. appear to be malicious as the only intention that could be gathered, if at all they are aggrieved of the determination, is that they intend to enhance the tariff which is not the case of applicants in the capacity of consumers. 6. I have heard learned counsel for the applicants/intervenes and that of learned counsel for respondent No.1 and perused the record and the law applicable thereto. 7. The prime question in determining the application under Order I, Rule 10, C.P.C. is the necessity of the applicant to determine the real question involved in the matter. Order I, Rule 10(2), insofar as the present applications are concerned provides that the Court may at any stage of the proceedings .... that name of any person who ought to have been joined whether as plaintiff or defendant or whose presence before the Court may be necessary in order to enable the Court effectively and completely adjudicate upon and settle all questions be added. What is important here is to see whether the plaintiff/petitioner in such a situation ought to have joined the applicant as necessary and proper party and in this phrase of subsection this is the only essential consideration. I would score of this proposition that insofar as determination of questions involved in the petitions are concerned, the petitioner ought to have joined the applicants/interveners as party as in their absence not only that petitioner could present its case but the Court may have also factually and completely adjudicated upon the matter. 8. The second phrase of Sub-Rule 2 of Order I, Rule 10, C.P.C. relates to a party whose presence may be necessary in order to enable the Court effectively and completely adjudicate upon and settle all questions involved in the suit. Such is also not the reality as the Court can factually and completely adjudicate upon all the questions raised by the petitioner in the petition. Any additional point, which may have been raised by these applicants, which does not form part of the pleadings in the petition, is not open for consideration. The applicants/interveners may have independent cause in this regard and they may have been aggrieved of any determination as far as the present controversy is concerned, however they do not appear to be necessary and proper party and I am not incline to join them as such hence their applications are dismissed. In the capacity of a shareholder they are bound by the decision of Board of petitioner and they have not presented the case of oppression. Similarly they cannot be deemed to be aggrieved of the determination of OGRA. 9. Coming to the petitions, brief facts are that the petitioner is a public utility company having majority of its shares held by Federal Government The petitioner has obtained a license from respondent No.1 for transmission, distribution and sale of natural gas. Substantially the petitioner company is seeking implementation and interpretation of law applicable to its tariff determination under the Ordinance 2002, the Natural Gas Tariff Rules 2002 (hereinafter referred to as Tariff Rules) and Natural Gas Regulatory Authority (Licensing) Rules, 2002 (hereinafter referred to as Licensing Rules) and the Companies Licenses for transmission, distribution and sale of natural gas. The determinations made in these petitions are dated 02.12.2010, 02.05.2011, 18.05.2012, 01.06.2013, 03.07.2014 and 18.12.2015. 10. The respondent No.1 has raised some preliminary arguments in its reply which relate to jurisdiction of this Court under sections 12(2) of the Ordinance 2002. It is the case of the OGRA/respondent No.1 that this Court in terms of Section 12(2) exercises jurisdiction which is at par with the extraordinary jurisdiction under Article 199 of the Constitution and that for the reasons mentioned therein this Court only then could direct the respondents to refrain from doing anything which is not permitted by law to do or to do something which is required by the law to be done or declaring that any act done or proceedings taken has been taken or done without lawful authority and have no legal effect. Learned counsel submitted that the determinations under challenge are based only on estimated benchmarks regarding Unaccounted for Gas (UFG) and others hence under section 13 of OGRA Ordinance the petitioner has an adequate remedy to file a review of the
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decision challenged through the instant petitions, therefore, these petitions are not maintainable and are thus liable to be dismissed by this Court; these are misconceived and mala fide. This Court, while deciding these questions which are subject matter of the determination of the tariff, cannot sit and exercise the appellate jurisdiction. 11. Learned counsel for the petitioner in this regard has argued that the parameters of the jurisdiction of this Court under section 12(2) of the Ordinance 2002 are no doubt similar to the exercise under Article 199 of the Constitution and the mandate of Section 12(2) is that this Court may declare any act in violation thereof to be unlawful. The scope, as submitted, is limited to the questions: That the authority has failed to comply with the specific mandate of and the duty cast upon it by section 8(6)(g) of the Ordinance 2002; That the OGRA has failed to comply with the specific rule namely Rules 17(1)(c) of the Tariff Rules and License Condition 21.1 in the context of suiting UFG Benchmark; That UFG itself being imposed on the petitioner is nothing more than the penalty and OGRA has acted unlawfully and against the provisions of the Statute and the rules by imposing a penalty in excess of the permissible range provided in law; and that the treatment of certain non-operating incomes of the petitioner as operating by OGRA is unlawful, illegal and without jurisdiction. 12.Heard the counsel on this preliminary issue. 13.Insofar as this preliminary issue of jurisdiction is concerned, there is no cavil to this proposition that any judicial review is subject to the policy as framed by the Federal Government. Neither this Court exercises appellate jurisdiction nor any expert opinion is required to be formed by exercising the jurisdiction in terms of section 12(2) of the Ordinance 2002. The domain and mandate through which the impugned determinations are to be scrutinized is built in Section 12(2). Any stretch of such jurisdiction would certainly be beyond the domain of this Court but to the extent of parameters relating to the regulated activity, this Court is competent to scrutinize such determination, if has not been done within the powers provided to the regulator in terms of OGRA Ordinance 2002 and others as referred above or done in excess of their jurisdiction. 14. Insofar as Section 13 of the Ordinance 2002 is concerned, it relates to a situation where the authority may oblige to review, rescind, change, alter or vary any decision or may rehear an application in the .event of a change in circumstances or the discovery of evidence which in the opinion of the Authority, could not have reasonably been discovered at the time of decision or (in the case of rehearing) at the time of the original hearing, if consideration of the change in circumstances or of new evidence would materially alter the decision. The situation as described in Section 13 is different and distinguished from the one provided under section 12(2) of the Ordinance. The matrix to initiate/apply Section 13 of the Ordinance 2002 are different than those available to the petitioner in terms of Section 12(2). 15.In view of the above, I would score of the consideration of the respondent No.1 that this Court has no jurisdiction to scrutinize the decision in relation to regulated activity within the frame of Section 12(2) and hold that in the frame of Ordinance 2002 to the extent of the tariff determination by the OGRA, the petitioner has no other efficacious remedy than the one available under. section 12(2) of Ordinance 2002. 16.I would now deal with four questions as raised by the petitioner's counsel on the basis of which a challenge is thrown to the determination of the OGRA. 18(sic). The first contention of Mirza Mahmood Ahmad, the learned counsel for the petitioner, in this regard is that as apparent from the bare reading of Section 8(6)(h) of Ordinance 2002 it cast a duty upon OGRA to ensure SSGC the right of return mentioned in its license. This assurance is not provided in any other regulatory framework as it guarantees to the licensee insofar as the financial
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benefits are concerned. He submitted that the mandate and purpose of section 8(6)(h) is as clear as possible by the statutory provisions to be. 19. Learned counsel submitted that the word 'ensure' means a guarantee which cannot be disturbed. He further argued that such assurance and guarantee is in the shape of return of profit in terms of percentage and hence a 17% return in terms of License Condition No.5.2 has to be a minimum benchmark and cannot be subjected to any other interpretation. Learned counsel for the petitioner has relied upon definitions of word 'ensure' as provided in Oxford English Dictionary, Merriam Webster and the 'rate of return' which normally and usually is in percentage of the original investment. He submitted that on the basis of the definitions of 'ensure' and 'rate of return' it is a conscious choice of the legislature in using the two words in section 8(6)(h) that no matter what happen the petitioner is entitled to and is virtually guaranteed to rate of return as provided in its license. It is claimed that this assurance is not an unseasoned, one because of the nature of its operation and its reliance on socio economic agenda of the State in its operation. 20.He submitted that the petitioner has no choice for its customers due to the policies of the Federal Government as to what extent it can make and what it cannot nor can it charge a tariff in excess of that dictated by the respondent authority. He further submitted that if such would have been the choice of the petitioner they would desire to supply natural gas to areas which are commercially viable. On the contrary the petitioner is bent upon to supply natural gas to areas where any other commercial entity would consider unviable. 21.Counsel further submitted that Section 8(6)(h) of the Ordinance has to be a paramount consideration insofar as sub-delegated legislation is concerned. The interpretation that OGRA places on section 8(6)(h) amounts to render it subservient to license condition 5.2. It infringes the cardinal principle that rules made under any Act could never be intended to override specific provisions of the Act itself. He relied upon the case of Province of Punjab v. Munir Hussain Shah reported in 1998 SCM R 1326 and Ziauddin Hospital Trust v. Director-General/Commissioner, Excise and Taxation, Sindh reported in PLD 2001 Karachi 52. He concluded this point that the mandate of the legislature as expressed in Section 8(6)(h) only requires an interpretation that the rate mentioned i.e. 17% is the bottom cap and not ceiling. 22.He next argued that the exercise of determination of UFG Benchmark is A one of the active components in the annual exercise of determining tariff. It is on this account that the evaluation criteria of the total revenue requirement specified in Rule 17(1)(c) provides that the tariff should include a mechanism for all licensees or licensees to get benefit from and pay penalty for failure to achieve benchmarks set by the authority through yardstick regulation. To support such contention in pursuance of Rule 17(1)(c) it is claimed that the License Condition No.21.1 contains a mechanism' as mentioned in Rule 17(1)(c). He submitted that the aforesaid License Condition No.21.1 entails that the licensee should care to act by taking all possible steps to keep their UFG within acceptable limits and for that purpose the authority has to affix a target of UFG in consultation with the licensee and experts for each financial year. He submitted that the cumulative effect of Rule 17(1) (c) and the License Condition No.21.1 leaves no room for doubt that the UFG Benchmark has to be an annual exercise to be undertaken by the authority in consultation with the licensee and experts. He further supported the contention of annual exercise with a reasoning that the factors determining the annual UFG Benchmark are ever evolving and changing however OGRA sets UFG benchmark in the year 2005 for next seven years in one go which determination too expired in the year 2012. He submitted that this exercise of setting the UFG Benchmark for seven years is in defiance of Rule 17(1)(c) and License Condition 21.1. In subsequent attempt or exercise to carry out and determine further benchmark of fixing a date of hearing cannot substitute or override specific mandate of Rule 17(1)(c) and License Condition No.21.1. 23.He submitted that this disallowance of UFG by the OGRA against the petitioner is nothing but a
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penalty in the shape of disallowance and the OGRA has acted unlawfully and against the provisions of Statue/ Rules by imposing this penalty in excess of permissible range provided under the law. He submitted that only criteria for UFG Benchmarking and consequences of contraventions as contained in Rule 17(1)(c) proves that this disallowance of UFG is only a penalty. He further argued that this Rule empowers the regulator to transform a mechanism for setting up of UFG Benchmarks and provides the consequences in the form of gains and penalties for meeting or contravening the same. The mechanism mentioned in Rule 17(1)(c) has been translated in License Condition No.21.1 which further provides , details as to how UFG Benchmark is to be set. The consequences for attaining or contravening the UFG Benchmark are provided by License Condition Nos.21.2 and 21.3. He thus submitted that the only possible interpretation of the Rule and License Conditions referred above is that if a licensee improves upon UFG Benchmark it would gain on that account and if it fails to achieve UFG Benchmark it will be expose to loss in the form of penalties stipulated in Rule 17(1)(c). He has relied upon the recent judgment of Hon'ble Supreme Court reported in 2016 SCM R 69. He submitted that this loss in meeting UFG Benchmark is a kind of penalty. The penalty is defined by the Hon'ble Supreme Court which include loss, disability or disadvantage of some kind visiting a person or his property on account of his own act or omission. He submitted that UFG Disallowance imposed upon the petitioner over and above limit prescribed under the Ordinance 2002 and Tariff Rules be declared as unlawful and illegal. 24.Lastly but not least he argued that the treatment of certain non-operating income of the petitioner as operative by OGRA is unlawful, illegal and without jurisdiction. It is claimed that the petitioner was granted license by the authority for transmission and distribution of natural gas. The petitioner is also engaged in other activities which are not related to transmission and distribution of natural gas and it is the case of the petitioner that all income accruing on account of such activities are its non-operating income and do not fall within the jurisdiction of the authority. He laid emphasis on Sections 6(s) and 6(t) to submit that the rate of return to be ensured to the petitioner by the Regulator pertains to activity arising out of the transmission etc. of natural gas only. In terms of Section 8(1) the Authority's jurisdiction to determine revenue requirement is also limited to transmission etc. of natural gas only. It is the case of the petitioner that any activity falling outside the scope of defined term for natural gas is not amenable to the jurisdiction of the Authority and hence any income arising out from the activities not pertaining to the transmission of natural gas is not its operating income. He argued that the licensee of natural gas apart from its transmission and sale as being carried out can also carry out other activities and businesses which do not necessarily fall within the domain of OGRA to regulate. OGRA has power to regulate certain activities but does not have power to regulate the petitioner or other activities carried out by the company. He submitted that such other activities which per learned counsel do not form part of the regulations are (a) Meter manufacturing profit (b) late payment surcharge (c) royalty from JJVC, (d) sale of LPG and NGL (e) sale of gas condensate and (f) provision of doubtful debt. 25.Mr. Salman Akram Raja, learned counsel for respondent No.1, on the other hand in response to the first contention regarding the rate of return contended that the contention of the petitioner is not warranted by any distinction and/or qualification between different sources of revenue in any provision of law. The return at the rate of 17% is demanded by the petitioner company on all assets of the company and not only on the assets used in distribution of natural gas. Petitioner company claims that the natural gas tariff be raised so that it enables the company to raise enough revenue from the consumers of natural gas to generate a return of 17% of its assets. He thus submitted that the petitioner cannot enjoy a windfall gains from allied businesses. He submitted that License Condition 5.2 clearly stipulates that for the purposes of calculating the return to the tune of 17% of its average net fixed assets in operation, the prevailing methodology and procedure shall continue to be enforced unless the Authority may otherwise approve.
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26.As to the second contention regarding UFG Disallowance learned counsel for respondent No.1 submitted that the contention/stand is not borne out of the language of the aforesaid rule 17(1)(c) of the Tariff Rules and License Condition 21.1. It is claimed that such benchmarks are always set in priority as a standard to be achieved by the regulated entity which is SSGCL. The language of Condition No.21.1 of the License Conditions requires setting up of a benchmark for each year but is not the requirement that it may be set every year. It is claimed that the order determining such benchmark by the Authority was headed by Mr. Muneer Ahmed, former MD of both SNGPL and SSGC and other eminent persons having vast experience in this regard. The benchmark for the year 2011-12 was set as 4/5% and further reduction in UFG Benchmark was expected. Since 2011-12 the allowed UFG Benchmark has been determined by the respondent authority after taking into account the data and facts filed by the petitioner company with its petition and no ground has been observed for deviating from permitting UFG figure of 4.5%. For 2012-13 OGRA allowed UFG at 4.5% which is identical to UFG figure allowed for the year 2011-12 even though OGRA could reasonably have required a lower UFG for the said year. 27.He next argued that insofar as UFG Disallowance is concerned, the company has taken a position that this disallowance in UFG Benchmark, as claimed by the petitioner in its petition, for estimated revenue requirement is in fact a penalty. It is argued that in terms of Section 8 of Ordinance 2002 the petitioner company must have an estimate of its total revenue requirement and the Authority must follow its total revenue requirement. The procedure involves receiving the expenditure,. cost, income projected by the petitioner and an independent review. He concluded that disallowance of UFG is simply a part of that exercise. If for example the petitioner company projected an expenditure that the Authority considered was not reasonable, it would not include that in the total revenue requirement. In the same manner the authority applies the same principle to the case of UFG Benchmark hence the entire premise that disallowance of any expenditure in the revenue requirement amounts to penalty, is completely flawed. He submitted that there is no direction or prohibition that the actual UFG may not be above the Benchmark UFG. 28.He further submitted that there is no co-rrelation between words 'penalty' and 'UFG Disallowance' . He submitted that in the substantial portion of the decisions relied upon by the petitioner i.e. ERR decisions and RERR decisions the calculation for amount by refusing to consider UFG in excess of Benchmark set earlier is called UFG Disallowance. 29.He submitted that without prejudice to the above, the petitioner company has failed to utilize funds allocated for UFG control and its reduction. He further argued that the petitioner company has failed to use such funds without achieving the desired results. The details of such funds could be perused from the record as available as Annexure F/5 along with reply of J.M. No.9 of 2016 as well as World Bank's letter along with comments in relation to Natural Gas Efficiency Project (IBDR. Loan). 30.In relation to non-regulated income counsel for respondent No.1 contended that the petitioner has categorize these non-regulated income into many head's such as late payment surcharge, meter manufacturing profit, royalty from JJVL, sale of LPG/NGL, sale of gas condensate and provision of doubtful debt. As to the late payment surcharge it is claimed that at the time of granting gas connection the petitioner company is required to receive advance security deposit by all categories of consumers in terms of License Condition No,44. The object behind this security deposit is to avoid risk of default. As far as the commercial and industrial deposits are concerned the security deposits are revised on monthly basis or keeping in view average gas bill of last three months. Thus the company is secured against the default as well as delayed ; payment. 31.There is nothing in the License or in the Ordinance 2002 which requires OGRA to ignore such financial components actually gained by SSGC while determining the overall revenue that it is allowed to raise from its consumers in order to achieve the assured return, as claimed by the
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petitioner. It is immaterial that since such revenue components described above are not regulated by OGRA therefore liable to he excluded while determining the SSGCL return on assets. The law does not bar or restrain the OGRA from taking such revenue into account while setting the return on assets at the rate of 17%. It is claimed that such inclusion of late payment surcharge in the total revenue of SSGC has been consistent practice since 1992 when the concerned Ministry of Petroleum and Natural Resources used to determine the tariff, which practice is being continued under the Ordinance, 2002. 32.In addition to the above learned counsel for respondent No, 1 submitted that the Regulator in accordance with the businesses in respect of credit sale also allows provision for…
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