Gas price hike may result in misuse

Minister urges govt to notify transparent mechanism to tackle litigation

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ISLAMABAD:

A cabinet minister has feared misuse of 63% of cheaper industrial gas in power generation by factories, stating that owners of captive power plants (CPPs) may exploit any lacuna and can also try to seek stay orders from courts against price hike.

Minister of State for Finance Ali Pervaiz Malik has urged the government to notify a transparent mechanism so that gas priced at Rs2,150 per million British thermal units (mmBtu) and meant for industries was not used in place of Rs3,500-per-mmBtu gas for CPPs. The current mechanism can facilitate this misuse.

The development comes amid disclosure that in Sindh and Balochistan nearly 2,100 industrialists already have stay orders and they did not pay a whopping Rs172.5 billion on account of gas infrastructure development cess (GIDC), despite recovering it from consumers years ago, including from farmers.

Malik has written to Finance Minister Muhammad Aurangzeb, who is also the chairman of Economic Coordination Committee (ECC) and to the Cabinet Division secretary, asking them to stop the misuse of recent price hike through a new transparent mechanism.

The ECC last week approved an increase in gas tariff for CPPs from Rs3,000 to Rs3,500 per mmBtu to provide energy at actual price. It also instructed the Petroleum Division to take necessary measures for imposing a grid transition levy on CPPs to enhance energy sector efficiency.

It was done to implement the International Monetary Fund (IMF) condition to either disconnect CPPs' gas connection or make it more expensive than grid electricity to discourage its use.

The government has decided not to discontinue gas supplies but will raise rates to the level where gas-based power generation will be at least 5% expensive than grid electricity.

The IMF condition to disconnect gas connections of industrial units, known as CPPs, was imposed on the assumption that those plants were running at 30% efficiency and gas should be diverted to more efficient liquefied natural gas (LNG)-based power plants.

"Further to the ECC decision taken on gas supply to captive power generators, as stressed in the meeting, it is of paramount importance now that Petroleum Division notify a fair transparent process whereby it would be ensured that no open-cycle captive power plant is operated on an industrial connection allowed for process only," wrote Malik to the ECC chairman.

After the price hike, the gas rate for CPPs is Rs3,500 per mmBtu, excluding levy, which is 63% expensive than the price of Rs2,150 for industrial connections. This provides an incentive to misuse gas.

Industrialists in Sindh easily get stay orders from courts and there are concerns that the new price hike may also be challenged.

Malik wrote that the Attorney General of Pakistan Office must be engaged for timely disposal of all pending litigations prior to the gas price revision. It was essential to ensure a level playing field and punish delinquency across Pakistan, he stated.

In Sindh, the industrialists have challenged the government's decision to charge a mixed price for local and imported gas, and obtained stay orders. In this backdrop, the minister of state for finance has expressed fears that the new price hike may lead to the misuse of industrial gas and can also be challenged in courts. This will put Punjab-based industries at a disadvantage.

Salman Siddiqui, a spokesman for Sui Southern Gas Company (SSGC), which supplies gas to Sindh and Balochistan, said that some CPPs had challenged the blended price mechanism, which was pending adjudication in the Sindh High Court. The government is currently charging CPPs a blended ratio for indigenous gas and re-gasified LNG at 60:40 for winters and 80:20 for summers. The spokesman clarified that there was no litigation against price notifications of February 2024 and July 2024 and industrialists had challenged only the blended gas price formula.

He said that on SSGC network, there were 828 CPPs, of which 148 had already been closed due to default on payments, with average daily consumption of around 200 million cubic feet (mmcf).

The company is recovering litigation cost from consumers through its revenue requirement. Due to stay orders, the company suffers cost in terms of additional legal expenses and legal costs are claimed in revenue requirement and Ogra after proper due diligence allows it, he added.

The spokesman said that a case regarding GIDC was also pending before the Sindh High Court, which reserved its judgement on September 21, 2024.

Total outstanding dues on account of GIDC stand at Rs184.7 billion on SSGC network and Rs172.6 billion is stuck in stay orders, said the spokesman, adding that 2,092 customers had obtained stay orders out of 2,336 clients.

He said that SSGC's role for GIDC, under the GIDC Act 2015, was of a collecting agent on behalf of the federal government.