Energy deregulation: Gas prices to go up, oil prices to come down

Prices for fertiliser manufacturers may double, consumer gas prices to rise by 15%.

ISLAMABAD:

As the government continues its efforts to allow market forces to determine domestic energy prices, the prices of petroleum are expected to decline by up to 4.5% next month even as the petroleum ministry is expected to request an increase in gas prices of between 10% and 100%.

The reduction in petrol prices comes as international oil prices had declined over the past month. The government has deregulated prices of oil, allowing for more flexibility in pricing to various oil marketing companies, though the import prices of the government-owned Pakistan State Oil (PSO) will serve as the benchmark against which pricing decisions will be monitored by the Oil and Gas Regulatory Authority (Ogra).

According to the breakup of new prices made available to The Express Tribune, the price of petroleum is expected to decline by 4.5% to reach Rs82.81 per litre. For kerosene, the expected decline is 2% to Rs82.93 per litre. Light diesel prices are expected to decline by 1.2% to Rs81.50 per litre while high-speed diesel prices are to go down by 4.1% to Rs90.25 per litre.

The new prices are expected to be effective from July 1.

Oil marketing companies (OMCs) had demanded an increase in their profit margins – which are determined by the government’s regulators – but the newly notified prices do not include any increases in their margins.

OMCs will continue to make profits of Rs1.5 per litre on petrol, Rs1.58 per litre on kerosene oil, Rs1.61 per litre on light diesel and Rs1.35 per litre on high speed diesel.

The reduction in oil prices is also likely to affect the sales tax collections. Officials estimate that revenues from sales taxes may go down by 9% on petrol, 7% on kerosene oil, 6% on light diesel and 9% on high speed diesel.

Meanwhile, the government’s plan to begin deregulating gas prices and bring them closer to oil prices is expected to move forward on Thursday (today), when the petroleum ministry will request permission from the Economic Coordination Committee (ECC) of the cabinet to increase gas prices by between 10% and 100% for various categories of consumers.

Petroleum Minister Asim Hussain told The Express Tribune that his ministry plans to seek approval for up to a 15% increase in gas prices for domestic consumers, up to 20% for industrial users of gas and as much as a 100% increase in the prices of gas paid by the fertiliser sector, which needs natural gas as its raw material.

The petroleum ministry will also seek approval to bring the price of compressed natural gas (CNG) to 65% of petroleum prices, from the current 50%.

Ogra had already decided on a tariff increase of Rs5.08 per million British thermal units (mmbtu) for customers of the state-owned Sui Southern Gas Company (SSGC) and Rs7.54 per mmbtu for customers of Sui Northern Gas Pipelines (SNGP).

The price increase was meant to go into effect on July 1, but the government was sued by the utility companies, which means that the new prices cannot go into effect until a court rules on the case.





Published in The Express Tribune, June 30^th, 2011.