EASING BURDEN OF GAS PRICE HIKE
TARIQ AHMED SAEEDI (email@example.com)
Jan 18 - 24, 2010
The impact of upward revision in gas prices this year would have been low, had consumers been not bound to pay minimum charges for only being connected to the gas supply. Oil and gas regulatory authority has increased prices of gas sold by the gas utilities to its different category of consumers with effect from January 1, 2010.
A comparative study of the last two notifications issued by oil and gas regulatory authority revealed that the impact of gas price increase on consumers would be minimal were there no minimum charges imposed by the authority across the board.
It was started to be campaigned last year that government would phase out subsidies on petroleum products for fiscal adjustments. Therefore, as a resolution of the New Year the Ogra notified on December 31, 2009 sale prices of natural gas sold by two major gas utilities (SSGCL and SNGPL) with effect from January 1, 2010. It was noticeable that the authority did not include minimum charges for any of the consumers (domestic, commercial, special commercial, ice factories, industrial, compressed natural gas, cement, fertilizer factories, Wapda's and Kesc's power stations, independent power producers, captive power) in this notification. Perhaps, that is why the authority came with another notification on January 8, 2010 in supersession of previous one, since except minimum charges to be paid by all gas consumers of utilities per month nothing was added in the latest issue. Minimum charges are self-explanatory term. That is, consumer has to pay certain amount whether or not it consumes gas.
For example, domestic sector is bound to pay monthly Rs128.15 minimum charges, as per revised notification. Similarly, minimum charges for commercial units like cafes, bakeries, milk shops, tea stalls, barbershops, laundries, cinemas, clinics etc. are Rs2189.28 per month. Industrial units would owe Rs12893.23 minimum to gas utilities every month. Monthly minimum charges for CNG stations, cement, IPP, and captive power are fixed at Rs16982.44, Rs18087.77, Rs11206.98, and Rs12893.29 respectively. The rate is variable for consumers of same sector. For instance, charges for gas consumption for fertilizers companies are not similar.
In the latest notification, the authority also notified sale prices of natural gas sold by Pakistan Petroleum Limited and Mari Gas Company Limited to Wapda's gas turbine power station, Guddu at Rs380.41 per mmbtu and Rs369.97 per mmbtu, respectively. It was also an addition in the earlier notification, since before gas prices of these two utilities were not notified.
There was an increase of maximal Rs3000 in the minimum charges payable by gas consumers of all categories in the recent notification as compared to June 30, 2009. For domestic sector as well as Roti Tandoors (special commercial), the increase was from Rs108.78. For commercial consumers, it was from Rs1856.80. Industrial users owed to gas utilities Rs10935.13 minimum charges per month. Minimum charges for CNG stations, cement, IPPs, and captive power were Rs14403.25, Rs15,340.65, Rs9504.74, and Rs10935.13, respectively.
There is a demand and supply gas shortfall in the country and according to official figure, this gap has crossed approximately one billion cubic feet per day (bcfd). Replying to a query of a member of parliament recently petroleum minister said the demand of natural gas in the country had reached five bcfd while the supply capacity was about four bcfd. It is felt generally that this gap is causing gas outage in the country in addition to price escalation. Since government has somehow to discourage consumption of gas, it has put the price of gas on the runway for taxing. It can not be described absolutely as the reason of price hike however, as the government also needs to maintain profit margins of its two leading gas utilities in order to fulfill the commitments, perhaps it agreed in the letter of intents to international monetary fund.
Government needs to make returns of SSGCL and SNGPL on their net operating fixed assets before tax and financial charges minimally at 17 percent and 17.5 percent respectively. Bi-annual rise in gas prices for consumers can easily increase revenue of the utilities. Alternatively, improving efficiency of transmission system can not only jack up revenue from gas supply, but also protect the consumers from the impact of energy inflation.
Unaccounted for gas that is gas-theft or line losses cost gas utilities billion of rupees annually. SSGCL and SNGPL recorded a revenue loss of about three billion rupees during last financial year because of one percent UFG of both the companies at an average price of gas, as per Ogra's annual report. It said gas consumers would have sustained an additional burden of Rs7.3 billion had UFG incidences not been minimized. Disallowances because of UFG for SSGCL and SNGPL in 2008-09 were Rs7308 million. Utilities have been given targets to bring down UFG levels to 4 percent by 2011-12. Ogra issued four notifications of prescribed prices for both the gas utilities in FY09.
Often, there is a difference in average prescribed price determined by the authority and requested by gas utilities. For example, there was a difference of Rs48.90 in average prescribed price per mmbtu of Ogra and SSGCL for FY09. Whereas the authority determined this price at Rs288.22 per mmbtu, SSGCL requested for Rs337.12 per mmbtu. The main reason of the variable calculation is said to be the price volatility of crude and others in the international market.
It is worthwhile noting that according to present tariff regime 80 percent of prescribed price is a cost of gas paid to the gas producers. Although SSGCL and Ogra calculated an equal sales volume for the year cost of gas had difference of Rs18,560 million, since the former estimated this at Rs124,222 million and the latter Rs105,662 million.
The gas utilities are required to submit to the authority under the Ogra Ordinance and the Natural Gas Tariff Rules, 2002 estimated revenue requirement (ERR) for each financial year by December 1 of preceding year. For this fiscal year (2009-10), Ogra estimated ERR at Rs108,597 million in contrast to company's Rs111,262 million. SSGCL and Ogra calculated average prescribed price at Rs273.97 and Rs259.37 per mmbtu respectively.
The regulator determined ERR for FY10 of SNGPL at Rs160,962 million. The company requested Rs277.82 per mmbtu while the authority determined average prescribed price at Rs273.92 per mmbtu.