Gas consumers to pay Rs5b more

ECC decides to recover local, imported gas price difference from urban consumers

ISLAMABAD:

Days after burdening gas consumers with an additional Rs400 billion cost, the government on Thursday decided to recover Rs5 billion per month more from them on account of imported gas supply to fertiliser plants at lower rates after the finance ministry refused to provide funds.

The Economic Coordination Committee (ECC) decided that two fertiliser plants would continue to pay the price of Rs1,229 per million British thermal units (mmBtu) as against the imported gas rate of Rs3,625. Finance Minister Dr Shamshad Akhtar-led ECC agreed that the difference between local and imported gas prices of nearly Rs2,400 per mmBtu, which translates into Rs5 billion per month, would be recovered from consumers through the upcoming second round of gas price increase, which would be effective from January 1.

The ECC decided to provide imported gas at local gas prices for two months which, if extended further, would translate into an additional burden of Rs60 billion per annum on the consumers. This would be over and above the Rs400 billion that the government is recovering from consumers from November 2023 to June 2024 through up to 193% increase in gas prices.

The Petroleum Division had proposed that 50% of the differential cost should be picked by provinces and the remaining 50% should be passed on to domestic consumers. However, the ECC decided to fully recover the cost from people having no voice in power corridors.

With effect from November 1, the government increased gas prices up to 193%. However, the Pakistan Bureau of Statistics reported last week that the hike in gas prices for the lowest income group was as high as 480%.

Two Punjab-based fertiliser plants, Agritech and Fatima Fertiliser, have the capacity to produce 74,000 tons of urea per month on supply of 1,050 mmBtu of gas. They are getting gas at just Rs1,229 per mmBtu, which cost taxpayers Rs30 billion in the last fiscal year.

The Oil and Gas Regulatory Authority (Ogra) has determined the imported gas price at $12.5 per mmBtu that translates into Rs3,625. However, the finance ministry did not allocate any subsidy in this fiscal year’s budget and instead decided to punish the consumers.

The Ministry of Industries was of the view that if the full cost of imported gas was recovered from the two fertiliser plants, then the price of urea would jump from Rs3,400 per 50kg bag to Rs6,400. Essentially, mostly urban gas consumers will subsidise the farmers.

Read: ECC rejects gas cess proposal

The ECC approved the import of 200,000 tons of urea from the government of Azerbaijan at $388.5 per ton. Azerbaijan’s government company, SOCAR, has accepted Pakistan’s request of deferring payments but for one month only. Pakistan will spend $78 million on the import of urea.

The government of Russia did not accept Pakistan’s request to provide urea on deferred payments, although the industries minister was keen to buy the commodity from Russian suppliers. Both Russia and Azerbaijan had offered urea at $388.5 per ton under a government-to-government deal.

The government had also floated a tender for urea import but private parties not only demanded relatively higher prices but also sought 8% to 10% premium on delayed payments. The lowest bidder was Aditya Birla Global Trading, which offered to provide 100,000 tons at $389.92 per ton. But it demanded 10% per annum for delaying payment for just one month.

The ECC approved a Rs1.9 trillion cash credit limit for Sindh and Punjab to finance commodity procurement over the past six months. It approved Rs1.16 trillion for the April-June quarter and another Rs750 billion for the July-September period. Punjab will get Rs1.49 trillion while Sindh will receive Rs428 billion aimed at facilitating the purchase of wheat and other commodities from farmers.

However, Punjab’s Rs143 billion and Sindh’s Rs109 billion commodity operation-related borrowing was not backed by any commodities, said the officials. The ECC directed both provinces to settle their unsecured commodity operations at the earliest. The finance ministry has been authorised to monitor the provincial cash credit limits and make sure that the provinces timely retire their unsecured debt. Punjab has submitted its commodity debt retirement plan to the federal government but Sindh has not yet followed suit.

Read more: OGRA, Pakistan Refinery strike deal for plant expansion

Punjab has recently retired a significant chunk of commodity procurement-related loans, saving a huge amount on account of debt servicing. The ECC approved a summary seeking to provide incentives for the Jhal Magsi South Development gas project. OGDCL, being the majority shareholder, in January last year claimed the incentives under the marginal gas policy by declaring the project as economically unviable.

The company is of the view that it needs additional capital investment for the construction of facilities and pipelines. The operationalisation of Magsi fields can help save $300 million through RLNG import substitution. It is estimated that the government will also earn $65 million in royalty and different taxes. The ECC rejected a summary proposing increase in prices of 262 medicines. It appeared that manufacturers of those medicines had tried to create an artificial shortage of drugs.

Health ministry officials said that all provincial health ministers in a meeting last week stated that most of the commonly used medicines were not available in the market due to which patients and doctors both were facing problems. They argued that the medicines were being sold at prices which were not viable. However, the Ministry of Health opposed the increase on the ground that it would adversely affect the poor households.

Published in The Express Tribune, November 24^th, 2023.

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