close
Saturday January 28, 2023

Pakistan’s competitiveness lost amid swelling circular debt

By Our Correspondent
January 11, 2023

KARACHI: A local brokerage firm on Tuesday stated that even an increase of three times in gas prices might not be enough to curtail whopping circular debt in the gas sector.

Average cost of gas produced by local exploration and production (E&Ps) is around $3-3.5/mmbtu, while total cost of supply including distribution and other cost is around $4.5-5/mmbtu.

“Thus, pipeline domestic consumer is not only consuming gas, which is cheaper than its production cost but 60-95 than various alternative fuels used for heating purpose,” Sherman Securities stated.

Analyst Farhan Mahmood in the report said even gas prices increase by three times for various categories of household consumers, the government would not be able to curtail piling of circular debt in gas sector, which is growing by approximately Rs400-450 billion on annualised basis.

The report stated that besides domestic sector, the government needed to hike gas price by at least two times for fertiliser sector.

A hike in gas price for both fertiliser and household would will in curtailing gas circular debt. An increase in gas prices for both feed and fuel gas will inflate local urea price by around Rs700 per bag. Even in that case, local urea prices would still be cheaper than international prices, according to the brokerage.

It suggested that if government managed to increase gas prices for domestic and fertiliser units, liquidity of the Oil and Gas Development Company, Pakistan Petroleum Limited, and Pakistan State Oil Company Limited might improve.

Given global energy crunch and an unprecedented hike in international gas prices over the last few years, prices for domestic gas consumers needed to be rationalised, the report said, pointing out that Bangladesh was an ideal example where same issues emerged since the country was dependent on 30 percent of its gas requirement through LNG, just like Pakistan.

Bangladesh follows single gas slab for domestic sector which is 3x higher than the what average consumers in Pakistan are paying in local currency. While domestic gas prices of minimum slab over last ten years have only increased by 14 percent in Pakistan, according to the report.

Around 11 million households (concentrated in urban areas) which have access to pipeline gas that reflects only 30 percent of the Pakistani households rely on cheap pipeline gas, while the majority of populace is dependent on other costly heating fuels including fire-wood, kerosene and LPG which ranges between $6-21/mmbtu, it added. On the flip side, the report continued, the government was subsidising gas for pipeline household gas consumers at an average rate of $2/mmbtu.

Comments