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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.