CCOE turns down hike in gas prices

Petroleum Division proposes revision in tariffs for domestic consumers during winter

ISLAMABAD:

The Cabinet Committee on Energy (CCOE) has turned down a proposal for a massive increase in gas tariff of up to 36%, fearing political backlash.

The Petroleum Division submitted a summary for revision in gas slab tariffs for domestic consumers covering winter months from November 2021 to February 2022.

Sources said that CCOE observed that there would be political consideration of the proposed increase in gas tariff and therefore approval should be sought from Prime Minister Imran Khan.

During the meeting, cabinet body members were of the view that the government should cap the consumer price of electricity at Rs12 per unit in the winter season and increase the price of gas to discourage its use.

At present, the country is mainly dependent on liquefied natural gas (LNG) imports that had been higher.

There has also been discussion during different meetings that the government should also cap the price of LNG in the winter season.

The objective was to reduce the price of electricity in order to shift consumers from gas to electricity in order to overcome possible gas crisis in the winter season.

Sources told The Express Tribune that the Petroleum Division had not proposed any increase in prices of gas for consumers falling in the first two tariff slabs.

The gas price for the first two slabs is Rs121 and Rs300 per million British thermal units (mmbtu) respectively. The average monthly bill for consumers in the first two slabs is around Rs308 and Rs957.

Around 32% of the total consumers fall in the first slab and around 25% in the second slab.

Sources said that the Petroleum Division had proposed a 15.05% increase in the gas price for consumers falling in the third slab from the current Rs553 to Rs683 per mmbtu. Their current monthly bill is around Rs3,733. The net increase in the bill is estimated at Rs562 with the proposed increase.

It proposed a 28.14% jump for the fourth-slab consumers from the existing Rs738 to Rs1,000 per mmbtu. These consumers are paying a monthly bill of around Rs8,016 and net increase is estimated at Rs2,256 per unit with the proposed increase.

The Petroleum Division had proposed 35.4% increase in gas tariff for the consumers falling in the fifth slab and 35.8% hike for the sixth slab. At present, these consumers are paying monthly bills of around Rs14,400 and Rs25,494 per mmbtu respectively. It proposed an increase in tariff to Rs1,500 from Rs1,107 and to Rs2,000 from Rs1,460 per mmbtu respectively.

The proposed increase would have increased the monthly bill of Rs5,095 for fifth slab and Rs9,128 for sixth slab.

The CCOE meeting was chaired by Federal Minister for Planning, Development and Special Initiatives Asad Umar on Friday.

Read Gas crisis to persist for 1-2 years

The forum discussed the agenda in detail and outlined that gas was a precious energy resource and resultantly the import of LNG was a large drain on Pakistan’s foreign exchange.

It constitutes a major part of the country’s total imports and consumer spending. It is now critically important to realise both at individual and national levels that energy resources need to be conserved by switching to energy-efficient appliances.

Keeping this in view, a committee, headed by Minister for Science and Technology Shibli Faraz, was formed.

The committee will give its recommendations within 30 days on the measures to ensure the use of energy-efficient appliances through various fiscal and administrative incentives, along with the regulatory actions to be taken to promote these appliances to rationalise consumption, reduce consumer’s monthly expenses and resultantly reduce the country’s energy import bill.

The expensive LNG imports have put an additional burden not only on the consumers but they are now plaguing the entire energy chain.

During the two bids, PLL scrapped LNG tenders and after just a few days accepted the bids from bidders at higher rates. PLL had cancelled a bid of Vitol for LNG cargo at $11.66 per mmbtu on June 2, 2021.

PLL cancelled this tender and re-invited bids, then a few days later accepted a bid from the same company at $12.7 per mmbtu with a difference of $1.11, putting an additional burden of Rs540 million on the consumers.

In another bidding round, PLL had invited eight bids for delivery in September and October. It received four bids from Qatar Petroleum at $13.79 to $13.99 per mmbtu. Other bids touched $16 per mmbtu. However, PLL cancelled the same tender and re-invited bids a few days later. In response, it accepted four spot LNG bids ranging in between $15.2 to $15.5 per mmbtu that was the highest bid since the beginning of LNG imports in 2015.

The PLL management failed to make timely LNG import plan that led to higher imports of LNG, the price of which was being paid by the consumers. Moreover, the higher cost of LNG also resulted in the cost of circular debt that increased to over Rs100 billion. The government had inducted LNG for domestic consumers in winter season. But there was no mechanism to recover the cost from the consumers.

Secondly, consumers had paid around $99 million in capacity payments during the last three years to terminal operators as PLL had been unable to mature all six cargoes in a month. The government had decided in July 2020 to allow LNG import by the private sector to reduce financial risk on government and ensure imports at competitive rates. However, PLL had been a major obstacle in LNG imports by the private sector in a bid to maintain its monopoly.

CCOE approved the summary submitted by Power Division on the winter incentive package on incremental consumption for all domestic, commercial and general services consumers of XW-distribution companies and K- Electric from November 1, 2021 till February 28, 2022.

Published in The Express Tribune, September 18^th, 2021.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.