ECC approves increase in gas prices
design: mohsin alam
The Economic Coordination Committee (ECC) of the cabinet on Wednesday approved an increase in gas prices for residential and industrial consumers to recover an additional Rs242 billion but could not finalise rates due to the competing interests of cabinet members.
The ECC also approved the imposition of 25% sales tax on all categories of SUVs and CUVs having value of over Rs4 million, excluding taxes. The decision will give Rs4.5 billion in additional revenue to the Federal Board of Revenue (FBR).
The matter of gas price increase is likely to land in the federal cabinet on Thursday and the Petroleum Division is in the process of working out new rates for the residential consumers and captive power plants in light of the discussions held in the ECC meeting.
February 15 is the last date to meet the International Monetary Fund (IMF) condition of increasing gas prices and to honour the commitment to raise rates for the in-house gas plants of industries.
There was uncertainty about the new gas rates for Fauji Fertiliser Bin Qasim Limited (FFBQ) plant, which was availing Rs10 billion in subsidies. The finance ministry wanted to withdraw it.
The industry minister again opposed the increase in gas prices for the in-house power plants owned by industrialists by Rs750 per million British thermal units (mmbtu), or 34%. But he agreed to a nominal increase in rates.
The energy minister sought to increase rates in line with the commitments given to the IMF.
ECC Chairman and Finance Minister Dr Shamshad Akhtar stated in the meeting that gas prices should be rationalised for the fertiliser plants that were availing the subsidy being paid by bulk, power, industrial, cement and compressed natural gas (CNG) consumers.
The subsidy of Rs39 billion on feed and fuel gas for Engro Fertilisers was withdrawn and the ECC approved a new rate of Rs1,597 per mmbtu.
In a statement, the Ministry of Finance stated that a summary of the Petroleum Division titled “Natural gas sale pricing FY 2023-24, effective February 1, 2024”, was deliberated upon at length.
“After discussion, the ECC decided that the revision of sale price and tariff should be consistent with revenue requirements of Sui companies,” the ministry said.
The ECC was informed that the Oil and Gas Regulatory Authority (Ogra) determined Rs205 billion in revenue requirement for Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC). After including taxes, consumers would be forced to cough up an additional Rs242 billion, said the sources.
The finance ministry stated that the ECC recommended a uniform gas price for fertiliser plants, a decision that should lead to the withdrawal of subsidies.
Engro was paying mere Rs200 per mmbtu on feed gas, which will now go up to Rs1,597. The Petroleum Division had proposed Rs760 per mmbtu but the finance minister got it increased to Rs1,597.
The additional amount to be collected from Engro will be used to slightly lower the proposed increase in gas prices for residential consumers. The Petroleum Division had proposed a 5% to 67% increase in gas prices for residential consumers.
New rates will be tabled before the federal cabinet on Thursday after incorporating the impact of additional revenue from the Engro plant.
Read Cabinet divided over 69% gas price hike amid IMF warning
The ECC directed the Competition Commission of Pakistan to investigate the undue increase in urea prices and fix responsibility. It also directed the Ministry of Industries to ensure the stability of urea prices.
However, the fertiliser sector lobby was very strong and on Wednesday again approached the finance ministry, asking it to review a day earlier decision to withdraw the subsidies.
Under an agreement with the IMF, Pakistan is required to further increase gas prices by February 15. Secretary finance told the ECC a day earlier that without price increase, the IMF would not complete the next programme review, which was necessary for the release of last tranche of $1.2 billion.
It is the third increase in gas prices that the government has proposed in the past one year.
The Petroleum Division had proposed to put the maximum burden on the most vulnerable households with 67%, or Rs100, increase per unit for monthly consumption of 0.5 cubic hectometres (HM3).
There were heated arguments on the proposal of increasing gas prices for the industrialists in the range of 18% to 34%. The Petroleum Division proposed that the existing distinction between the export and non-export industries using gas for in-house electricity generation should be abolished.
It proposed that one unified price of Rs2,950 per mmbtu may be fixed for all types of industries. This will result in an increase of Rs750 per mmbtu, or 34%, for exporters and Rs450, or 18%, for the non-export sector using gas for captive power plants.
“The textile sector cannot take an additional burden of Rs33 billion after the previous increase in gas prices put a burden of Rs110 billion,” Industries Minister Gohar Ejaz told The Express Tribune after the meeting.
He said that due to the previous increase in prices, the textile sector badly suffered, which also impacted its exports.
An official of the Petroleum Division said that due to the stiff resistance by the industries ministry, the new increase in captive gas rates would be much less than the proposed Rs2,950 per mmbtu.
Pakistan has committed to the IMF that it will make gas prices uncompetitive for the captive power plants by increasing them to the level of imported LNG prices. The imported LNG prices stand at Rs3,750 per mmbtu.
The efficiency of industrial captive plants is very low compared to LNG-fired power plants, thus, the IMF and Petroleum Division want to divert gas from industries to the power generation sector.
Only five sectors – textile, carpets, leather, sports and surgical goods – were using subsidised gas in the name of the rest of the exporters. The exporters of petrochemicals, rice, steel, ceramics, cement and glass goods were not getting the benefit.
Agritech and Fatima Fertiliser are currently getting RLNG from the SNGPL network. The proposed price for these plants will be Rs1,596 per mmbtu, which is the average prescribed price in case these plants are offered system gas on SNGPL.
These two plants are availing Rs9 billion in subsidy, which should be withdrawn instead of passed on to residential consumers.
For the CNG sector, the ECC approved increasing prices from Rs3,600 per mmbtu to Rs3,750 equivalent to the RLNG price being the fuel for the majority CNG producers.
Published in The Express Tribune, February 15th, 2024.
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