Gas consumption: Price hike planned, domestic consumers to be spared

Govt will increase tariff for CNG, industrial, commercial consumers and power plants.

Zafar Bhutta May 29, 2014
Multilateral donors have been pushing the government to increase gas prices and end cross-subsidy. PHOTO: FILE


The government has decided in principle to increase gas prices for compressed natural gas (CNG), industrial and commercial consumers as well as power plants. The increase will not affect domestic consumers, officials say.

However, the impact of increase in prices will be determined after the Oil and Gas Regulatory Authority (Ogra) takes a decision on the revenue requirement of gas distribution companies for ongoing financial year 2013-14.

“The government wants to cap gas prices for domestic consumers, but desires to raise tariff for CNG, industrial and commercial consumers as well as power plants,” an official told The Express Tribune.

The premise given by the government was that gas prices in Pakistan were the lowest in the region, therefore, these should be increased, the official added.

According to the officials, multilateral donors have been pushing the government to increase gas prices and end cross-subsidy. They also suggest removal of cap on wellhead gas prices offered to exploration companies to encourage a boost in production.

Ogra – the oil and gas industry regulator – is waiting for government guidelines before setting the revenue requirement of gas utilities as it is to adjust Rs33 billion in their accounts following reduction in Unaccounted-for-Gas (UFG) ceiling, which covers losses caused by theft and leakage.

Earlier, Prime Minister Nawaz Sharif had directed the Ministry of Petroleum and Natural Resources to keep gas prices on hold until the adjustment of Rs33 billion as a hefty increase could spark a backlash from people and opposition parties, officials said.

Now, the ministry is seeking approval of the federal cabinet that income from non-core activities like late payment surcharge, meter manufacturing plant, royalty from joint ventures and sale of liquefied petroleum gas (LPG) and condensate should be treated as non-operating income of the utilities – Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL).

The ministry is also seeking permission to treat the volume stolen by non-consumers but detected and determined by the companies, volume against minimum billing amount charged from domestic consumers and volume consumed in law and order-stricken areas as gas sales for the purpose of setting the UFG benchmark.

The ministry has sent a summary to the cabinet, seeking the go-ahead for policy guidelines to enable Ogra to determine the revenue requirement of the gas utilities in a way that they do not go bankrupt.

Ogra had to set the revenue requirement for implementation from January this year, but the government failed to issue policy guidelines. The companies could have gone into trouble had Rs33 billion been recovered from them, as directed by the National Accountability Bureau (NAB), after downward revision in the UFG ceiling.

The federal government had been a major beneficiary of Ogra’s decision on increase in UFG ceiling in 2010. It raised the ceiling from 5% to 7%, enabling the utilities to receive an extra Rs44 billion from the consumers to cover higher gas theft and leakage over a three-year period.

Later, the court gave judgment in favour of 5% ceiling, prompting Ogra to recover Rs44 billion from the utilities or the federal government, which is a major shareholder in the companies.

Total financial impact on SNGPL of the court’s order for financial years 2010-11, 2011-12 and 2012-13 was estimated at Rs23.1 billion. Of this, Rs9.34 billion had already been adjusted. In the case of SSGC, the impact was calculated at Rs21.74 billion.

It is interesting to note that NAB has also filed a reference against heads of these companies, which have got a stay order against reducing the UFG ceiling.

Published in The Express Tribune, May 30th, 2014.

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