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The increase in gas tariffs

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  5. Price hike
  6. The increase in gas tariffs
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  8. PTCL new tariff policy
  9. Marketing and its potential

The two gas companies are to be put on sale by the end of the current year


Aug 14 - 20, 2000

The gas consumers in Pakistan are in for another shock in the form of yet another raise in its tariff as the government has decided to withdraw the subsidy of about Rs.22 billion which is presently available to domestic and fertilizer sector consumers. The government is planning to bring about a cultural change in the prevailing gas price regime by progressively doing away with the huge tariff subsidy of about Rs.22 billion", a high official of the Ministry of Petroleum confided with this correspondent.

This would mean another raise of above 200 per cent raise in the prevailing gas prices being charged from domestic and industrial consumers in the fertilizer sector. An across the board increase of about 15 per cent was announced last month. The second raise of about 25 per cent is expected during the current year.

In order to transform the existing 'subsidy culture' into a market-driven gas price model, "It is an absolute pre-requisite to multiply the current gas price by as much as two to three times in real terms to reach a normal market value, he said. The government has been pondering to switch over to the market prices in phases that may span more than five years", the source in the Ministry disclosed.

The fertilizer and domestic sectors account for 22 per cent and 17 per cent respectively of the total national gas consumption that has crossed 2000 million cubic feet a day (mmcfd), The withdrawal of subsidies would increase the cost of fertilizers a direct input in the agricultural sector and might play havoc with farm produce. Similarly, it would be equally miserable for the domestic consumers, generally the urban segment of population, to swallow huge increase in gas tariffs in one go. An insider disclosed that these steps are being taken to make the two gas companies Sui Northern and Sui Southern in the public sector not only profitable but lucrative business enterprises before their privatization with the ultimate objective of getting a fairly good sale price". The official further said that the absence of a market driven gas tariff was one of the major impediments in privatisation of the two downstream gas companies. The subsidies were also negatively affecting the returns of the two gas transmission and distribution companies.

The SNGPL is hard hit as it caters to the larger subsidised sector's need. Its franchised area is Punjab and the NWFP where the fertilizer units are getting feedstock gas at larger scale. Further it has huge domestic consumers as against SSGC. The SSGC accommodates a lower sale volume to the fertilizer sector that is only four per cent, while SNGPL's share is 14 per cent of its supplies to the fertilizer sector. A market-oriented gas price regime is a much needed step to improve the financial health of the two gas companies, he said.

The two gas companies are to be put on sale by the end of the current year. In order to ensure continued rising profitability to the investors, the government is intending to fix the tariff structure for gas consumers for the next three to four years before embarking upon the sell-off drive in the gas sector. This scheme of the present government is causing delay to the much talked about privatization plan for the petroleum sector, as the privatization commission has decided to join the gas and petroleum sectors into one entity.

Well-placed government sources said the government experts at the Ministry of Law and Justice, Privatisation Commission, Ministries of Power and Petroleum and other related departments have mounted their heads on the desks deliberating upon the ideas of how to combat fears of unwarranted price hike once the gas administration is privatised.

The proposed privatization law is being drafted in such a way that it would itself be a roadblock in the gas price hike for general consumers for the next at least four years. However, the government is looking for other measures so that the new administration of these gas companies can be bound to follow a laid roadmap of the gas tariff for the next many years.

"We intend to fix a roadmap for the tariff adjustments in the gas sector so that the consumers interest is guaranteed even in the post-privatisation scenario", Altaf Saleem, Chairman Privatization Commission confirmed to the newsmen after his meeting with the bankers.

He said the government was striving to safeguard the consumer's interest while going for an aggressive privatization plan. Saleem further said that the fixation of a tariff roadway would also help the buyers to watch their interests and come out with a solid offer keeping in view all the relevant details with regard to the to-be-purchased entity. The government is applying highest grades of sensitivity to the price fixation beforehand so much so that the draft law on privatization has been re-drafted now for more than six times.

Saleem, who had called a meeting of heads of all commercial banks, including foreign and private banks, at the State Bank building was explaining them salient features, efforts and policies of the government towards privatization. The meeting was also attended by central bank governor Ishrat Hussain.

He also explained bankers the privatization priorities of the commission in which he put liquefied petroleum gas (LPG) operations of Sui Southern, Sui Northern and Pakistan State Oil (PSO) as being on top. He said bids had been called and prequalification process was underway for dis-investment of LPG operations from the state controls. He hoped that sell-off will bring in $4 billion.