Tariff hikes are usual but the decision by Ogra and Nepra to allow a price hike in both sectors will come under more scrutiny. Gas consumers will be hit with an almost 6.3 percent hike in gas tariffs. After criticism from Prime Minister Shahid Khaqan Abbasi and senior government officials for not incorporating system losses in tariff determination, the Oil and Gas Regulatory Authority ceded ground and allow SNGPL and SSGPL to include line losses as a charge to paying consumers. The prescribed tariff for gas has been increased by Rs60.65 per MMBTU. A similar decision was made by Nepra on the same day, raising the electricity tariff by 0.48 per unit after increasing the allowance for line losses in the sector. This means consumers will have to pay an extra Rs185 billion per year as well as pay for Rs24 billion in write off in the electricity sector. Pakistan’s gas distribution companies lose almost one billion cubic feet per day in unaccounted for gas (UFG) lost in their system. The trouble is that, instead of shifting the financial burden onto consumers, the government could focus on pushing the two gas distributers and electricity suppliers to improve their performance. Mechanisms to do so could be in the form of a carrot-and-stick approach, which imposes key performance indicators and key monitoring indicators as well as hefty fines for the failure to adhere to these standards. The consultants asked to advise Ogra on the matter have suggested the former – without suggesting a penalty for the gas utilities in case they fail to meet the standards set. Similar practices should be imposed on the electricity sector. It cannot be forgotten that the two gas utilities were offered incentives to bring system gas losses down to under six percent in 2003-2004 but line losses have continued to spiral out of control.
Once again, we are seeing that the burden of poor performance will be borne by consumers, which is an unfair ask. In the gas sector, the actual recommendations from the consultants hired was to increase the UFG allowance to 7.6 percent but it was admitted that more than 5 percent UFG losses are not the norm in the industry. This would be combined with the imposition of around 30 performance metrics that the gas companies would have to meet. But what incentive do SNGPL, SSGPL and Discos have to do better when Ogra and Nepra are effectively deciding to reward them for their inefficiency? The cost is borne by the larger economy in the form of inflation and a potential economic slowdown. Gas remains an essential commodity in the country’s energy supply chain for electricity generation, industrial production and household consumption. Both gas utilities continue to make a hefty profit every year, which makes rewarding them for incurring line losses something that is not required to keep them financially afloat. Line losses in the electricity sector are higher – standing at almost 16 percent now. There is a need for more stick than carrot to reduce line losses. As it stands, both the electricity and gas sectors are being rewarded for their failure to redress their issues. It is not fair that the burden for this be borne by consumers.