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Tuesday March 19, 2024

Gas tariffs

By Editorial Board
September 21, 2018

There is finally a ‘will they, wont they’ decision on gas tariffs. After signalling that the PTI government would not pass a gas hike onto consumers, the Economic Coordination Committee has finally approved – and confirmed – an increase of up to 143 percent in gas tariffs. The impact of the gas hike will become clear as time passes but the immediate effect is to generate around Rs116 billion. Both the minister of petroleum and the information minister have blamed the decision on the PML-N for having created a deficit of around Rs152 billion in the two national gas companies. However, as we have noted earlier, the logic does not sit well with the financial statements of SNGPL and the SSGC, which have both continued to show operating profits for the last fiscal year.

Instead of accepting Ogra’s recommendation, which guarantees a 17.5 percent profit to the two companies, it would have been better to revise the terms offered to the two public-sector utilities. The overall impact of the gas price increase will be around 35 percent, instead of the 46 percent determined by Ogra. However, another gas price hike cannot be discounted based on how much the PTI dithered before acceding to the demand. The government for now has shielded consumers from around Rs58 billion in revenue demand, which may likely to be approved in another gas tariff hike.

Being afforded a fresh start in government should have allowed the country’s administrators to question some of the more fundamental metrics used to determine price adjustments. This is clearly not going to happen. The ECC, however, decided to shift most of the burden from residential consumers to commercial consumers. It also decided to create seven new residential consumer categories, instead of the existing three categories to charge differential gas tariffs to each. The monthly gas bill for a residential household consuming 500 mmbtu of gas will increase from Rs12,500 to Rs30,340 per month, which is likely to stir significant discontent. The gas price for the five major export industries has been kept stable, which is probably a relief to the export sector. The government has also claimed to provide relief to LPG users, which it claims make up the bulk of the population. The GST on LPG has been reduced from 17 percent to 10 percent, which could trigger a reduction in LPG prices. This unpopular decision is likely to increase profits in the gas sector, but one must wonder if the government has been able to balance the interests of the gas sector and the larger economy in a balanced way.