Petroleum ministry seeks subsidy injection into gas utilities

Delay in gas price revision has pushed accumulated losses of companies to Rs62b

Zafar Bhutta July 20, 2015
Gas sale prices have not been revised since January 2013 except for a slight change in rates for gas consumed by captive power plants in August 2013. PHOTO: FILE

ISLAMABAD: The Ministry of Petroleum and Natural Resources has cautioned the prime minister that the government would have to release a significant amount to provide support to the gas utilities where losses have mounted to Rs62 billion due to delay in gas price revision, officials say.

Historically, gas companies have been functioning without any direct subsidy cushion from the government as the entire cost of supply is passed on to consumers. However, gas is being provided to domestic and fertiliser sectors at concessionary rates through a cross-subsidy mechanism, which shifts the burden of subsidy on to other consumers.

Some people believe that powerful lobbies of textile and power companies were behind the delay in gas price revision for the last two and a half years.

Before the announcement of budget in June this year, Petroleum Minister Shahid Khaqan Abbasi had tried hard to persuade Prime Minister Nawaz Sharif to approve an increase in gas prices, but the premier did not give its backing.

Now, the petroleum ministry is preparing itself again to urge the prime minister to give the go-ahead to the price revision in order to bail out the country’s gas utilities - Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC).

The Oil and Gas Regulatory Authority (Ogra) had determined the revenue requirement of the utilities for financial year 2014-15 in June 2014. However, gas sale prices were not revised because of administrative hurdles. As a result, the gas companies were suffering heavy losses as sale prices were much below the cost of supply.

According to officials familiar with the developments, accumulated losses of SNGPL and SSGC have reached Rs34 billion and Rs28 billion respectively. Gas sale prices have not been revised since January 2013 except for a slight change in rates for gas consumed by captive power plants in August 2013.

According to a petroleum ministry official, the prime minister has been told that the government would have to provide subsidy in an attempt to enable the gas companies to continue servicing the consumers and timely complete pipeline and infrastructure projects.

The ministry also wants to increase prices for the first three slabs of domestic gas consumers.

Under the first slab, it proposes to push up prices from Rs106 to Rs125 per million British thermal units (mmbtu), from Rs212 to Rs250 per mmbtu for the second slab and from Rs531 to Rs700 per mmbtu for the third slab.

This will take the monthly gas bill from Rs464 to Rs542 for the first slab, up Rs78, from Rs1,787 to Rs2,100 for the second slab, up Rs313 and from Rs2,668 to Rs3,138, up Rs470.

Published in The Express Tribune, July 21st,  2015.

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