Tuesday March 21, 2023

Nine residential consumer slabs: Govt set to enforce new gas pricing mechanism

January 12, 2023
Govt set to enforce new gas pricing mechanism. Representational image.
Govt set to enforce new gas pricing mechanism. Representational image.

ISLAMABAD: The government has decided to change the gas pricing mechanism under which the existing slabs of residential gas consumers will be increased from 6 to 9, ensuring the high-end consumers will cross-subsidise the lower-end consumers, top official sources told The News.

“We are going to propose to increase the gas price of consumers falling in the 2-3 slabs category by 25-30 percent, 3-4 slab consumers by 100 percent and consumers of 4-5 slab category by 300 percent. And the last high-end consumers who will use the gas under the last three slabs from 6-9 will have to pay Rs3,230 per MMBTU. The LPG cylinder’s cost still stands at Rs4,200.

“However, the first three slab category consumers of 0.5hm3, 1hm3, and 2hm3 will face no increase in gas prices.”

“The objective to increase the slabs is to accommodate the consumers who jump into other slabs by using a little more gas.”

Prime Minister Shehbaz Sharif will be briefed next week about the new gas pricing mechanism along with the proposed increase in gas prices.

Since September 2020, the government has not increased the gas prices owing to which both the gas companies are braving a loss of Rs677 billion, and if the situation continues unabated, then their loss will increase up to Rs757 billion by June 2023.

Right now, the average gas sale rates for residential consumers stand at Rs450 per MMBTU in the Sui Southern system against the prescribed price of Rs928 per MMBTU. The official said they have worked out the new prescribed price at an average of Rs1,030-1,050 per MMBTU.

The government wants to do away with the grave concerns of the IMF about the rapid growth in circular debt in the oil and gas sector, which has now amounted to Rs1,600 billion. The government will deal with it by netting off dividends of the government in profit-making entities to loss-making entities, the circular debt of Rs850 billion will be settled in the balance sheets and the remaining Rs750 billion will be settled with an increase in gas prices. More importantly, the amount under the Benazir Employees Stock Option Scheme (BESOS) resting with PSEs would also be adjusted in improving the balance sheets.

The government has also decided to introduce a limited gas tariff based on WACOG (Weighted Average Cost of Gas) on residential consumers for a certain period till the recovery of the cost of RLNG injected into the domestic sector. RLNG of Rs108 billion has been injected in the last 4 winter seasons and RLNG of another Rs110 billion is to be provided in the ongoing winter season. This is how RLNG of Rs218 billion in toto would be diverted to the domestic sector in Punjab till February 2023. The government may introduce a WACOG tariff to recover the RLNG cost in the SNGPL system. Right now, the RLNG price is ring-fenced and under the latest scenario, RLNG has been classified as a gas product. Earlier, RLNG was being treated as a petroleum product owing to which its cost could not be recovered from residential gas consumers.

To a question, the officials said the government dividends of Rs850 billion in SOEs that the government have not used yet will be used in netting off the dues of some of the entities that are facing losses.

The officials said that term finance certificates would also be made saleable documents by converting them into Pakistan Investment Bonds (PIBs) and TFCs of OGDCL of Rs140 billion would be cashed in. They said that in 2013, the OGDCL was provided TFC against its lending of Rs80 bn to GHPL (Government Holding Private Limited).

The GHPL in the first two years also provided an interest rate on TFC of Rs80 billion, but later on, it failed to provide it. This is how the amount swelled to Rs140 billion, which the GHPL owes.

“The TFC that was provided to OGDCL was just a document and it could not be cashed in. Now the government has decided to convert TFCs of various entities into PIBs (Pakistan Investment Bonds), which will be saleable documents, and this is how the amount to be cashed in will be used to improve or cleanse the balance sheets of the entities.