The federal government may face trouble in continuing to subsidise gas prices through cross subsidy following the recent decision of the Oil and Gas Regulatory Authority (Ogra) that announced average prescribed prices for all categories of consumers.
It is a common practice by Ogra to announce different prices for different categories of the consumers. However, in a recent decision, the regulator did not announce the prices for different categories.
Under the Ogra Ordinance, the federal government is bound to send guidelines to the regulator before the hearing relating to different prices for different categories of consumers so that interveners could give their point of views. During hearings conducted by Ogra, All Pakistan CNG Association Chairman Ghiyas Paracha had taken up the matter that the federal government was to send guidelines to the regulator aimed at announcing different prices for different category of the consumers.
Under section (8-a) Ogra had a right to review prescribed price of gas, which results in retail consumer price. However, the government could use its right to impose development surcharge under section (8-b).
Following these clauses, Ogra had announced average prescribed price for the consumers and the federal government now had the right to impose or change rates of taxes. But it could not change the prescribed price of gas for the consumers.
The current prevailing prices of consumers are Rs120 to Rs1,460 per mmbtu. However, Ogra notified to reduce price to Rs623.31 per mmbtu for Sui Northern Gas Pipeline (SNGPL) consumers and Rs750.90 per mmbtu for Sui Southern Gas Company (SSGC) consumers.
But Ogra stayed away from announcing different prescribed prices for different categories of the consumers.
Experts say that government would have to notify these averaged prescribed prices for all consumers announced by Ogra, which means that prices for different sectors would come down whereas the prices for domestic consumers’ highly subsidised would go up.
Under Ogra Ordinance, the federal government is to notify the prices within 40 days and these prices would be implemented in case the government fails to notify in the set time.
The government has options to increase taxes or impose new taxes. But it would be impossible for the government to increase higher taxes for different sectors as the government was already subsidising domestic, export-oriented sectors and fertiliser sector.
The major portion of the gas is being consumed by domestic sector at subsidised rates. The rates of indigenous gas are higher for other sectors that contribute to the economy.
Experts say that indigenous gas should be diverted to those sectors contributing to economy and expanding pipeline network should be stopped. The consumers’ network of domestic sector is increasing whereas gas supply is shrinking, which has resulted in higher gas prices and load shedding.
Published in The Express Tribune, July 19th, 2020.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
1719053250-0/BeFunky-collage-(5)1719053250-0-270x192.webp "non solar consumers bear rs200b burden")
COMMENTS
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ