Another raise in gas tariff
Any increase will add to the
companies profitability and around Rs.5 to 6 billion will go to the government accounts.
From SHAMIM AHMED RIZVI, Islamabad
Jan 22 - 28, 2001
Utility consumers are about to face yet another shock in the form of
exorbitant raise in gas prices as the government has reportedly decided to increase as the
government has reportedly decided to increase tariff of natural gas by 12 to 18 per cent
across the board to bag Rs. 10 to 15 billion out of consumers pocket.
According to an insider, a summary submitted by the Ministry of
Petroleum and Natural Resources on gas price increase was deferred by the cabinet in its
previous meeting last month when it approved raise in petroleum products with effect from
January 1, 2001. The cabinet is now expected to take up the deferred summary in its
forthcoming meeting. Interestingly, raise in natural gas price, was also sought with
effect from January 1, 2001. The petroleum ministry had presented four scenarios on gas
price increase including 9%, 12%, 15% and 18% in view of the fast depleting sui gas
reserves, proposed sale of public sector gas utility and production companies and
depreciation of rupee against dollar. The sources in the petroleum ministry expected an
approval of 12 to 15% gas tariff increase by the cabinet.
The gas prices were increased by 15% with effect from July 1, 2000
following approval from the federal cabinet. The cabinet had then directed the petroleum
ministry to prepare a long term gas tariff rationalization plan and educate the masses
through wide publicity about the necessity of tariff rationalization. The cabinet had also
decided to review gas prices in December 2000.
The petroleum ministry sources, however, agree that this time gas
companies were not in loss as was the case in July when the SNGPL and SSGCL were jointly
facing a loss of around Rs.6 billion and around Rs. 3.6 billion went to the national
kitty. This time any increase will add to the companies profitability and around Rs.5 to 6
billion will go to the government accounts. Around 12% gas price increase has a total
revenue impact of around Rs.10 billion.
Consumer gas prices during last 18 months have increased by 36% to 50%.
The first major increase inclusive of 15% general sales tax came in August 1999, ranging
from 21% to 34% for various consumer groups. This was followed by 15% in July 2000 and now
another gift is looming large.
Perhaps no government in the past has added so much to the miseries of
the common men in such a short time of about 14 months as has the government of General
Pervez Musharraf. It came into power with tall claims to put an end to tax evasion,
smuggling and black economy besides recovering looted money from bank defaulters. While
the progress on these fronts is negligible, the present government has certainly
distinguished itself by adding significantly to the unemployment and inflating the cost of
living making life unbearable even for employed ones. It has raised the prices of
petroleum 5 times, electricity 3 times and gas twice in less than a year besides raise in
prices of wheat, atta and roti. These increases in basic inputs has brought wave after
wave of inflation. It appears that all the awe and wrath of a present government has been
used against the helpless poor masses rather than the smugglers, tax evaders, bank looters
and black money mafia.
The petroleum ministry officials plead that producer price of gas from
new gas fields, mostly operated by the private sector multinationals, has been on the rise
because of its indexation with international fuel oil prices. They said it was difficult
to be absorbed by the gas utilities Sui Northern and Sui Southern (SNGPL and SSGCL). A
source in the Ministry of Petroleum & Natural Resources confided to this correspondent
that 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. This would mean another raise of above 100 per cent in the prevailing gas prices
being charged from domestic and industrial consumers in the fertilizer sector.
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 two 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 3
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 privatization of the two downstream
gas companies. The subsidies were also negatively affecting the returns of the two gas
transmission and distribution companies.
The two gas companies are to be put on sale by the end of the current
financial 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
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.