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Gas prices evaluation

Researchers believed that the natural gas prices less volatile than oil prices but still volatility is a concern for the economy. The prices of natural gas has stabilized somewhat but its history is not as stable. In the case of Pakistan, the prices of natural gas have recorded many fluctuations. It is one of the most widely used source of raw material and heating source in Pakistan. Furthermore, various studies revealed that natural gas is one of the most widely utilized fossil fuels because of its environmental characteristics such as low carbon dioxide emission, efficiency in power production, rising demand from the industrial sector and a wide geographical distribution of reserves across regions. As such, it is extensively considered as the fuel of choice both from an environmental and economic point of view.

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In Pakistan, different sources mentioned that gas prices would have to be unavoidably increased by between 75 to 80 percent from next fiscal year 2019-20 as the gas prices had not been increased during the past two years. Statistics furthermore showed that during the last days of February 2019, the Government of Pakistan noticed a 7 percent raise in LPG price and a 22 percent raise in gas price to meet unmet revenue requirements predicted at Rs 75 billion for FY2018-19. This implied Rs 111 per unit raise was necessitated in March as per Oil and Gas Regulatory Authority (OGRA), however, the present Government of Pakistan opted not to increase gas price for 9-month and concentrated the entire increase in the winter months when demand is high in upcountry areas which created a furore. Furthermore sources also recorded that the Government of Pakistan declined tariff for zero-rated industries while keeping the rate for tandoors (chapatti makers) constant accounting for FRR falling further short of targets – decisions, it was maintained by OGRA in March this year, that would necessitate a rise in tariffs by about Rs 120 per MMBTU.

It is also important to note that a sudden change in the prices of natural gas can affect the industrial production levels like pharmaceuticals, glass, fertilizers, fabrics, plastics, ceramics, paper, steel etc., given that there is shortage of natural gas from domestic sources and a large portion is now imported in the shape of LNG. In March 2019, OGRA also revealed that about $ 2 billion worth of gas was stolen yearly in the whole country – a factor responsible for the bulk of the greater than 11 percent unaccounted for gas (UFG) losses. And further contended that a massive revenue shortfall, of about Rs 164 billion, would be evident the end of this current fiscal year until and unless the government opted to increase gas rates during the period under review.

 

The Government of Pakistan presently levies excise duty of 17 percent general sales tax on gas as well as levies a gas infrastructure development cess. And natural gas development surcharge budgeted to generate Rs 16 billion in this fiscal year.

The experts mentioned in their studies that for many developing states, natural gas also offers opportunities for industrial development which could launch their economies on a sustained growth path of growing income and poverty reduction. Ensuring sustainable and reliable supply of gas to many developing states remains a main constraint. Different sources urged that the three slabs comprising of lower to middle income earners were to bear a relatively small increase like; those consuming up to 50 cubic meters per month would witness a 10 percent rise, those consuming from 50 to 100 cubic meters would bear a 15 percent raise and those consuming between 100 and 200 cubic meters would experience a 19 percent raise.

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In last I would like to mention here that the Government of Pakistan has already raised gas tariffs about 143 percent during October last year but recently OGRA seems determined to hike the prices in the upcoming fiscal year. Any further hike in the gas prices may lead to a large destabilization of CNG sector. The present government should promote a preference for CNG usage over the oils in the transportation industry so CNG industry may earn substantial revenues to cover their growing CNG production cost.

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