Govt raises gas tariff to avoid subsidy misuse

Ministry says 75% of gas supply being used by captive power plants of industries

ISLAMABAD:

The government has unearthed the misuse of gas subsidy by captive power plants to the tune of 75% and increased tariff to put an end to the malpractice.

The Petroleum Division informed the cabinet recently that an analysis of the consumption pattern of gas/ re-gasified liquefied natural gas (RLNG) in export-oriented sectors revealed that up to 75% of the fuel was being consumed by the captive power plants for power generation.

Officials of the Petroleum Division added that just 25% of gas went to the general industrial use.

Based on decisions of the Economic Coordination Committee (ECC), Sui Northern Gas Pipelines Limited (SNGPL) supplied gas and RLNG at a fixed tariff of $6.5 per million British thermal units (mmbtu) to the export sector of Punjab. The government financed the price differential exceeding the said tariff in the form of subsidy.

On average, a subsidy of Rs14 billion per year had been released to SNGPL from financial year 2019 to 2021.

During current fiscal year 2021-22, the demand for subsidy is estimated at around Rs52.29 billion on prevailing RLNG prices whereas the arrears till September 2021 are calculated at Rs20.6 billion.

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In a nutshell, against the cumulative demand for Rs72 billion, which included Rs52.2 billion and Rs20.6 billion, in the budget for financial year 2021-22 only Rs10 billion had been allocated.

In order to avoid the misuse of concessionary tariff of $6.5 per mmbtu for self-power generation, the government had decided to incentivise the captive power generation. As a result, there was a dire need to curtail/disconnect gas supplies to the captive power units where there was always apprehension of the misuse of subsidised gas supply.

It is pertinent to mention that the domestic gas quantum is on the decline at the rate of 9% per year apart from the highly inflated price of LNG in the global market.

During the current winter season, there are fears that the sustained supply of gas/ RLNG to export sectors may face occasional disruption owing to enhanced demand from domestic, power and fertiliser sectors.

In order to enhance gas supply to the critical sectors of economy while safeguarding the vulnerable consumers, the Petroleum Division has drawn up proposals, which will curtail the misuse of gas as well as ease the extra burden on the national exchequer.

The Petroleum Division proposed to revise the existing gas tariff of $6.5 per mmbtu for the captive power plants of export sectors to $9 per mmbtu from November 15, 2021 to March 31, 2022.

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It proposed to continue the existing tariff of $6.5 per mmbtu for the consumption of gas/RLNG in processing (general industry use) in the export sectors.

During discussion, it was stressed that while the proposed measures would help ease gas shortage in the short term, there was a need to find mid-term and long-term solutions as well.

The prime minister said that the ministries and divisions, which were preoccupied with the day-to-day affairs, should establish think tanks to deal with the emerging problems and draft out-of-the-box solutions.

In response to a query on whether all export proceeds were being remitted by the exporters, it was clarified that the State Bank of Pakistan was monitoring the remittances as per the stated prices of exported goods, however, the possibility of under-invoicing could not be ruled out.

The cabinet considered the summary titled “Revision in Tariff of Gas/RLNG for Export-Oriented Sector”, submitted by the Petroleum Division. After discussion, the cabinet approved the proposal of the Petroleum Division to increase gas tariff for the captive power plants.

Published in The Express Tribune, November 19^th, 2021.

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