The Petroleum Division has drafted a proposal for review by the Economic Coordination Committee (ECC) that suggests a substantial increase in gas prices for all consumer categories, effective from October 1, 2023, in Islamabad.
Furthermore, the division has advised the blending of locally produced gas with imported liquefied natural gas (LNG) for supply to export-focused industries, placing an additional burden on other gas consumers.
As per sources, the cost of natural gas is set to rise for Sindh and Khyber-Pakhtunkhwa (K-P), the two major gas-producing provinces, while it will become more affordable for sectors involved in exporting goods, including their inefficient captive power plants.
The National Accountability Bureau (NAB) previously categorized supplying local gas to inefficient captive plants while disregarding efficient power plants as a criminal offense.
The Petroleum Division’s proposal entails blending 25% locally produced gas with LNG for export industries in Punjab. However, this will impact the revenues of public gas utilities. Furthermore, control over the blending process will be handed over to companies, which experts fear may manipulate gas supplies.
Sources indicate that this new approach will result in increased gas costs for Sindh and K-P, and there is apprehension that these two provinces may engage in legal disputes with the federal government. They have already voiced opposition to providing subsidized gas to Punjab.
According to the proposal, gas prices for domestic consumers will be raised to subsidize supplies to export sectors. However, this move contradicts the International Monetary Fund’s (IMF) stance against gas subsidies.
Controversy has already arisen regarding the provision of subsidized gas to the export sector. A study conducted by the Petroleum Division during the Pakistan Tehreek-e-Insaf (PTI) government revealed that millers received subsidized gas, but their domestic market sales increased while they did not export anything. The Finance Division has also pointed out that textile exports rose due to the depreciation of the rupee, but there was no significant increase in shipment quantities.
The Petroleum Division has also proposed a significant increase in fixed charges for protected domestic gas consumers.
For instance, domestic consumers in the first four consumption tiers paid fixed charges of Rs10 per month, a figure that could potentially increase to Rs400 according to the Petroleum Division’s proposal.
For non-protected domestic consumers, who were previously paying fixed charges of Rs460 per month, the proposal suggests raising these charges to a range of Rs1,000 to Rs2,000.
The Petroleum Division contends that the gas sector has no budgeted subsidies and affordability for specific consumer categories is maintained through cross-subsidies generated from surplus revenues in other consumer categories.
The average prescribed price for each gas molecule is Rs1,291 per million British thermal units (mmBtu). However, protected domestic consumers currently pay between Rs121 and Rs250 per mmBtu in the four consumption slabs.
There will be no tariff increase for the protected category, which constitutes 57% of domestic consumers, but the fixed monthly charges may be raised from Rs10 to Rs400.
For non-protected domestic consumers, tariffs may see marginal increases in initial consumption tiers, with progressive tariff adjustments in subsequent tiers, eventually aligning with the cost of liquefied petroleum gas (LPG) at the highest consumption level. This move aims to discourage excessive consumption and encourage those who can afford it to switch to alternative fuels. The benefit of the previous consumption tier will be maintained up to a consumption of 4 hm3, but the final tier of non-protected domestic consumers will not have this benefit.
Fixed charges for the non-protected category may increase for two tiers: Rs1,000 per month for consumption up to 1.5 hm3 and Rs2,000 for consumption exceeding 1.5 hm3.
The proposed increase in gas tariff for bulk domestic consumption is from Rs1,600 per mmBtu to Rs2,000, with no change in the tariff for the special commercial (Roti Tandoor) category.
Commercial Sector:
It is important to note that piped gas is primarily available in urban areas, covering only 30% of the country’s population. The remaining population already uses LPG as an alternative fuel.
Approximately 51% of commercial consumers receiving piped gas are currently charged re-gasified LNG prices, while 49% pay natural gas prices. The existing tariff is proposed to be revised from Rs1,650 per mmBtu to Rs3,900, which still represents a discount compared to the switching value of LNG or LPG.
This rate will be applicable to all commercial consumers, irrespective of whether they use LPG or RLNG, in order to establish a level playing field for all commercial consumers.
Power Sector:
A limited number of power plants are connected to the networks of Sui companies, and most of them receive dedicated gas supplies and RLNG.
To avoid burdening domestic consumers of the power sector, the gas tariff for power generation will not undergo any changes.
Export Industry (Processing and Captive):
Currently, there is a significant price disparity between industries operating on the networks of Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL).
Industries in the north (operating on the SNGPL network) consume a 50:50 blend of indigenous gas and RLNG for nine months and 100% RLNG for three months, with an average tariff of $9.6 (Rs2,790) per mmBtu over the year.
In contrast, processing connections of industries in the south (operating on the SSGC network) are charged Rs1,100 per mmBtu. SSGC has recently started supplying blended gas in a 75:25 proportion to captive plants, which approximately costs $5.9 (Rs1,710) per mmBtu.
The Petroleum Division emphasizes that industrial tariff incentives are aimed at promoting production and exports, despite the higher component of RLNG and rising costs of both natural gas and RLNG. This move aims to eliminate discrimination and create a level playing field for existing and new players, encouraging industrialization and minimizing the disparity between industries operating in the north and the south.
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