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May 21, 2019

Gas hike


May 21, 2019

Affordable natural gas is set to become a thing of the past, what with Ogra proposing another hike in gas tariffs last week. While the number bandied about was around 47 percent on average, a closer look would reveal that the gas authority had asked for gas rates for some consumers to be raised as high as 205 percent. The almost 80 percent of gas consumers who consume less than 200 units of gas will see their gas bills double or triple under the proposed formula. Many may argue that this then becomes largely a tax on the poor, instead of the rich something that may fall within the framework of the IMF’s pre-conditions for the bailout. Much of the talk around the need for gas sector pricing reform has shown itself to be a code word for charging the underprivileged of Pakistani society the most for the consumption of gas. On average, Ogra has proposed bringing the gas tariff to a uniform rate of around Rs738 per unit for both public-sector gas companies.

The rationale for increasing the tariffs is not the rupee depreciation alone. Around 20 percent of last year’s revenue shortfall has been included in the proposal, but the biggest operational logic of the proposed increases is to remove subsidies. The impact of the proposed changes will be a revenue increase of around Rs60 billion. There is no demand for gas supply companies to improve their performance or the government to manage gas supply better. Already, the current government had pushed gas tariffs up by around 143 percent in September 2018 in some gas slabs. Whatever the loss situation within gas sector companies, an issue that goes against the balance sheets of gas companies, the burden of the failures of the government will be transferred to the poor and the lower middle classes. Moreover, one must wonder what the benefit of devaluation to the export sector will be if its cost of production will increase more than the actual devaluation. Within a year gas costs for industry have increased by over 50 percent as supply issues are yet to be resolved. There is little to suggest that the gas price increase will do much to improve the economy, and will have little more than minuscule impact on the actual performance of gas sector companies. The idea that price increases are easier than real reform is something we seem to be getting used to.

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