Decision-making: Prime minister says no to gas tariff increase

Defers the plan until April despite warnings of financial collapse of gas utilities.

ISLAMABAD:

Prime Minister Nawaz Sharif has refused to give the nod to the proposed increase in gas tariff by 10% to 65% and deferred the plan until April 2015, despite warnings of the financial collapse of gas utilities.

Since the government faced stiff opposition from political parties to the increase in tariff, Sharif refused to agree to the proposed increase. However, he decided that in case of the increase in gas tariff, the price hike would not apply to the first two slabs of domestic consumers.

In January, the petroleum ministry had planned to increase gas prices but the current administration faced a strong resistance in the Senate from opposition senators, who warned of staging a sit-in if the plan went ahead.

Officials said that Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi informed the Cabinet Committee on Energy (CCE) on February 12 that Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) could not sustain losses of billions of rupees due to the low tariff and may collapse financially any time.

“Therefore, the government would have to review the tariff for all the consumers including domestic, industrial and commercial,” an official quoted the ministry as saying.

The petroleum minister also proposed a small tariff increase for the first two slabs of domestic consumers consisting of the low-income groups, and suggested higher price rise for the rest of the categories.

The prime minister said that it would be more appropriate that the increase in tariff was deferred to the time of low utilisation by the domestic consumers.

Along with this, he said that no change should be made in the tariff for the slabs that covered people from the low-income groups.

It was pointed out that the proposal suggested revision for other categories as well including captive power plants and the fertiliser sector.

After a detailed discussion, the formal decision of increasing gas prices was deferred. However, it was agreed, in principle, that the tariff would be raised with effect from April 1, 2015.

It was also decided that the first two slabs of domestic users will not be changed and will remain at the current levels. A revised proposal would be submitted by the Ministry of Petroleum after consulting the stakeholders.

The Oil and Gas Regulatory Authority (Ogra) had on July 3, 2014 approved for the ongoing financial year a tariff increase of Rs58.29 per million British thermal units (mmbtu) for SNGPL and Rs22.90 per mmbtu for SSGC. Under that arrangement, the former was to collect Rs37 billion from the gas consumers in one year to cater to its revenue requirement and the latter was to collect Rs30 billion.

Under Clause 8 of Ogra ordinance, the Ministry of Petroleum is bound to issue advice to Ogra for the increase in gas tariff. But due to political considerations, the prime minister refused to approve the rise in gas price and deferred it to April 2015.

Published in The Express Tribune, February 21^st, 2015.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.