Barring domestic consumers: ECC allows across-the-board increase in gas tariff

Approves fresh guidelines for OGRA, assistance package for farmers authorised.

ISLAMABAD: The federal government approved on Thursday fresh guidelines for Oil and Gas Regulatory Authority (Ogra), allowing it to increase gas tariffs by 5% for all categories of consumers except for domestic ones, fulfilling an important condition of the International Monetary Fund (IMF).   

The guidelines were approved by the Economic Coordination Committee (ECC) of the Cabinet, which also endorsed a Rs32-billion cash assistance package for farmers. It has decided to give cash to basmati growers to compensate for a crash in prices, while extending provision of electricity for agriculture tube-wells for another year.

As a result of the fresh guidelines, revenue requirements of gas distribution companies, Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL), will be determined, according to officials of the Ministry of Finance. The new requirements will result in a 5% increase in gas tariffs.



Ogra had determined an 11% increase in gas tariffs from July this year. However, the government has not yet decided when it will pass on the 5% increase to consumers but it is expected that the increase will be implemented soon in order to address the IMF’s concerns.

The IMF had shown reservations over the government’s ability to collect the Gas Infrastructure Development Cess due to the stay order granted by the courts.

This led to an Rs145 billion hole in the budget that the IMF wanted the government to fill by increasing tariffs. However, the officials said the 5% increase will not be sufficient.

However, the ECC turned down Ogra’s proposal of linking volume against minimum billing amount charged to domestic consumers.

ECC chairman directed all the relevant ministries and authorities to discuss the proposals in advance and suggest mutually accepted and well prepared plans to be accepted by the forum.

The ECC also directed Ogra that till the finalisation of the new tariff regime by Ogra, the income from non-core activities (LPS, Meter Manufacturing plant, Royalty from JJVL and sale of condensate/LPG) may also be provisionally treated as a non-operating income.

It also doubled the provision of doubtful debts to 1% of sales in line with the prevailing accounting practices, which will reduce tax liabilities of the gas distribution companies.

Rice matters

The ECC also approved packages for basmati growers just a day after Prime Minister Nawaz Sharif decided to dole out cash to help the farming community amid the reduction in prices of the commodity in international and domestic markets.

Those growers who cultivated basmati at a maximum 25 acres of land will be entitled to Rs5,000 per acre cash to offset the impact of reduction in basmati prices in the local market, according to an official handout of the Ministry of Finance.

The basmati was being sold at a rate of Rs1,400 to Rs1,500 per 40-kilogramme, making it difficult for the farmers to recover the cost of sowing. Last year, the prices were in the range of Rs2,500 to Rs3,000 per 40kg.

However, the ECC said the benefit will only be available if the provincial government picks half of the assistance. The total amount of subsidy will be around Rs10 billion, said the finance minister. The compensation will be made to small growers of 25 acres only, it added.

The farmers who have already received compensation against crop damage in recent floods in Punjab will not be eligible to this additional compensation.

The committee also approved an extension in electricity subsidies to agriculture consumers till the end of the ongoing fiscal year. The farmers will keep getting electricity at the rate of Rs10.35 per unit for running tube-wells. An amount of Rs22 billion will be required to foot the electricity bill, said the finance ministry — an amount which will be Rs3.5 billion higher than the last year.

The ECC also approved the proposal of allocating around 110 mmcfd of gas produced in Khyber-Pakhtunkhwa for power generation in the province.

However, it attached the condition that the gas will be given to Private Power Infrastructure Board.

Published in The Express Tribune, November 21^st, 2014.

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