Gas circular debt set to soar by Rs275b

Tariff hike ‘inevitable’ to avoid debt surge, Senate panel told

ISLAMABAD:

A senate committee on Wednesday was warned that the circular debt of the gas sector would increase by Rs275 billion if its prices were not increased.

During a meeting of the Senate Standing Committee on Petroleum, chaired by Senator Mohammad Abdul Qadir, the director general (gas) said the sector had suffered shortfall of Rs65 billion in July this year because the prices were not raised in time.

The petroleum division officials of the energy ministry told the Senate panel that domestic consumers had to switch to LNG in winter. The officials added that if the domestic consumers did not transfer to LNG, they would be unable to provide gas to them for eight hours during the season.

The DG (gas) said the sector would suffer a revenue shortfall of Rs210 billion because of the old recoveries and supply of LNG to the domestic sector. Therefore, he added that they had no other option but to increase the gas prices.

He further told the committee that the circular debt of gas was increasing by 40%, adding that it had hit Rs2.1 trillion. The petroleum division officials said the Oil and Gas Regulatory Authority (Ogra) had fixed the loss limit of the gas sector at 7%.

They added that gas companies were allowed to lose Rs15 billion per year. The officials further pointed out that the International Monetary Fund (IMF) had banned subsidies in the budget. They continued that an increase in gas prices was inevitable to meet the financial needs of the companies.

The Ogra chairman also told the committee that the gas tariff hike was "inevitable". He blamed the contracts of local gas wells in the past as reason for the increase in prices. The Ogra chairman told the panel that gas supply agreements had been signed at a lower price in the past.

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The DG (gas) told the committee that 3,000 mmcfd of gas was being produced locally in the country while its average price was Rs1,217 per mmbtu.

Earlier, the members of the committee expressed their concern over the increasing prices of petrol and gas in the country.

They inquired why the prices of gas were being increased with each passing day. The DG (gas) replied that the tariff of protected domestic consumers had not been increased since January 1.

The convener of the panel observed that presently, the circular debt of the gas sector stood at Rs2.1 trillion. The DG (gas) told him that the combined revenue shortfall of the two Sui companies was nearly a sum of Rs700 billion. He added that this shortfall was to be met by raising gas prices.

The petroleum division official briefed the committee on the supply of gas to the country’s fertiliser plants. They informed the panel that there were 10 fertiliser factories in the country with an annual composting capacity standing at 6.8 million metric tons. The officials said these 10 factories produced 6.3 million metric tons of fertiliser and 740 mmcdf of gas was being supplied to them.

They continued that these factories used electricity and gas to produce fertiliser. The officials said the gas rates for these factories were separate for feedstock and power generation. They informed that committee that none of these fertiliser plants was closed and gas was being provided to all of them.