ISLAMABAD - An economic expert has highlighted the “disparities” in pricing among various consumer segments, emphasising the need for deregulation in the natural gas sector, transitioning to cost-of-service-based tariffs, and eliminating subsidies and cross-subsidies for attaining financial sustainability.
Dr Tariq Majeed said the recent massive gas price increase was expected to benefit oil and gas exploration firms and gas utilities, bolstering their cash flows. However, he said that the industries solely relying on gas supply would face challenges amid rising energy costs, which would lead to further increase in inflation. He said though the government insisted on the necessity of this price hike to “encourage” efficient natural gas utilisation, ensure sustainability and affordability of gas supply chain, and curb the ongoing accumulation of circular debt, the price increases would further stress out the industrial sector, rendering it “uncompetitive.”
He pointed out that the factors contributing to the cost increase included depleting gas reserves, currency devaluation, inflation and reliance on imported liquefied natural gas (LNG). Additionally, talking to WealthPK, he said the International Monetary Fund had emphasised addressing circular debt as part of its agreement with Pakistan. The government had recently approved a substantial increase in natural gas prices for various consumer categories.
This decision follows a thorough review of the proposal submitted by the Petroleum Division, endorsed by the Oil and Gas Regulatory Authority (OGRA), and subsequently approved by the Economic Coordination Committee and the Federal Cabinet. OGRA had previously released its Estimated Revenue Requirements (ERR) for the fiscal year 2023-24 for Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) on June 2, 2023, indicating revenue requirements of Rs358 billion and Rs339 billion, respectively.
Section 8(3) of the OGRA Ordinance 2002 mandated the federal government to instruct the gas sector regulator to adjust consumer gas prices in accordance with the government policy, effective from July 1, 2022, to be implemented within 40 days of OGRA’s determination. Regrettably, this revision has yet to be implemented, causing revenue shortfalls for the Sui companies from July to September 2023, underscoring the urgency to address this financial disparity.
The government has protected low-income households and businesses, with 57% of protected domestic consumers experiencing no gas price increase. A fixed monthly charge of Rs400 has been introduced for consumption up to 0.25 hm3 (cubic-hectometres), and the sale price for gas supply to tandoors (ovens) remains unchanged.The government has also rationalised gas prices in north and south regions to create a “level playing” field by introducing a Regionally Competitive Energy Tariff for export industries, and aiming to discourage captive gas usage in sectors where alternatives are available.