As Pakistan gears up to begin importing gas from Iran, the government is in the midst of putting forward a plan that would seek to raise gas prices in Pakistan by an average of 15% every quarter for the next year in a bid to bring them more in line with international rates.
Sources told The Express Tribune that the Planning Commission has been circulating an outline of such a plan to several ministries, including the ministry of petroleum, seeking comments before finally submitting it for approval to the economic coordination committee of the cabinet. The plan envisages a total of a cumulative 75% increase in gas prices over the next four quarters.
As the country begins to rely more and more on imports to meet its gas requirements, the Planning Commission believes that prices need to be brought in line with international prices to encourage more judicious use of domestic resources by minimising the price differential between local and imported prices.
Sources within the petroleum ministry, however, doubt that the government will be able to implement what is likely to be a politically unpopular proposal.
Average wellhead prices in Pakistan stand at just over $3 per million British Thermal Units (mmBTU). Under the agreement signed with Iran, Pakistan will pay Tehran $11 per mmBTU so long as international oil prices remain above $100 per barrel.
The government spends close to Rs40 billion in subsidising gas every year. The petroleum ministry has been trying to the end the subsidy and made a proposal to do so last year, which did not materialise.
“Now, a plan is again being discussed to end the cross subsidy on gas by increasing prices,” sources said, adding that gas is being wasted owing to its low price. As prices rise, the government hopes that consumers and industry will use gas more efficiently and undertake conservation measures.
In ending the subsidy, the government is likely to have the support of the textile industry and fertiliser manufacturers, since the subsidy is financed by charging higher prices to industrial consumers.
Domestic consumers pay the least for their gas, with the lowest end of consumers paying as little as Rs95 ($1.12) per mmBTU. A consumer that uses 3.5 mmBTU is likely to be billed Rs412 for their domestic gas supply. To obtain the same amount through liquefied petroleum gas (LPG), a consumer would need to buy seven cylinders at a cost of Rs7,000.
“This is the difference that government wants to bridge by increasing the price of natural gas,” said sources familiar with the matter.
Published in The Express Tribune, May 16th, 2011.
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