Govt plans to lower gas tariff for big consumers

ISLAMABAD: In a major development, the sitting regime has decided to introduce the mechanism of WACOG (weighted average cost of gas) while determining the gas tariff by blending local natural gas with imported RLNG mainly to bring down the gas tariff for industrial (export and non-export) sector in Punjab, high-end domestic consumers and RLNG-based power plants, senior officials of Energy Ministry told The News.

“To this effect, the prime minister has constituted an 11-member committee comprising minister for petroleum as convener, minister for power, minister for industries as members, Power Division secretary, industries and production secretary and Captain (retd) Muhammad Mahmood as members. The four provincial chief secretaries will also be the members of the committee, while the Petroleum Division secretary will act as secretary of the committee,” they said.

The committee has been given seven days to report its findings and recommendations to the prime minister about the introduction of WACOG in gas tariff with its positive and negative implications. Currently, Ogra determines the natural gas tariff for domestic sector consumers and LNG price separately for power sector.

During caretaker regime, the gas regulatory body introduced the limited WACOG mechanism when it increased the gas prices up to 193 percent from November 1, 2023 to recover the price of LNG diversion cost to the domestic sector. There is an estimate that in 2023-24 winter season, LNG diversion cost would stand Rs232 billion. In the head of LNG divesrion to domestic sector, there is still a backlog of Rs250 billion dues which is yet to be recovered from the domestic consumers. Once the WACOG mechanism is introduced, the LNG backlog dues would also be recovered from the domestic consumers easily.

Under the terms of reference (ToRs), the committee will examine the whole spectrum of issues including WACOG impact on the gas system’s liquidity/ efficiency and the circular debt. It will also evaluate the implications of WACOG on domestic power, industrial sectors (including fertilisers), and commercial, and captive power sectors.

The committee will propose a technology-based, foolproof, and efficient system for a direct subsidy to farmers by provinces to mitigate the impact of WACOG on the agricultural sector and productivity.

The WACOG affects a broad range of sectors, highlighting its significance in the country’s energy framework. The inclusion of high-level ministers and secretaries indicates the government’s serious approach to addressing the WACOG-related issues. The directive for technology-based solutions for subsidy distribution suggests a push towards modernisation and efficiency.

“If the WACOG is introduced, then the cost of local gas for the industrial sector in Sindh, Balochistan and KP would be increased. However, the gas price for the industrial sector in Punjab would tumble,” the officials said.

However, they said, the gas-producing federating units such as Sindh, Balochistan and KP may oppose the introduction of WACOG arguing that they have enough gas to meet their energy needs.

During the PTI regime in 2020, the same move for implementing WACOG mechanism in the gas tariff was initiated, but at that time Sindh Chief Minister Syed Murad Ali Shah opposed in a letter to the then prime minister Imran Khan that the federal government’s endeavour was quite inappropriate and unconstitutional, as import of RLNG is solely for the Tier-II category of natural gas consumers under the ring-fenced tariff arrangements.