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The
increase in gas tariffs
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The
two gas companies are to be put on sale by the end of the current year
From
SHAMIM AHMED RIZVI,
Islamabad
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.
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