Economy finds it difficult to digest
By AMANULLAH BASHAR
Mar 11 - 17, 2002
Recently, an increase has been announced both of oil
and gas prices in Pakistan. Since the increase in oil prices has been
tied up with the international oil prices, people have no option but to
accept it as a routine, however the consumers are finding it hard to
swallow the increase in gas prices.
The present team of the economic managers has been
enforcing its economic reforms for the last two years and the tight
measures taken for fiscal discipline have usually be appreciated in the
larger interest of the national economy. The campaign for economic
reforms and recent events related to September 11 have brought down the
economic activity for quite sometimes in the country affecting the daily
living of the people in general. However the efforts of the government
have started yielding fruits reflected in the positive results
especially in the macro economic sides. The management of the reserves
has also proved a great success, which are expected to touch the mark of
$6 billion by the end of the current financial year. With these strong
signals, it is quite natural that the common man would expect some
relief to his kitchen budget, which has become difficult within the
given means and the lessening of the purchase power in general.
The gas companies had recently introduced a new
formula for billing based on heating value instead of the volume of the
gas consumed by the consumers. According to reports, the bills for gas
consumption on the basis of heating value have registered a quantum jump
and the bills have been doubled in many cases. Policy to bring gas
prices at par with oil perturbing the minds that if the consumer has to
pay the same price for gas what is the point in converting the present
oil based system to gas or coal if the benefit of the locally produced
gas is not passed on to the people.
The government has announced that natural gas tariff
will go up by an estimated 70 to 130 per cent over a period of three
years following the decision to withdraw the annual subsidy of around
This was stated by secretary petroleum M. Abdullah
yousuf at a Press Briefing.
The entire subsidy would be withdrawn in three years
starting with the current tariff increase. The Gas Purchase Agreement
(GPA) of the PPL was being dismantled and would be signed afresh. The
price increase would have gone much higher had the government fully
increased it to the level of other gas fields but it was decided that 50
per cent of the increase be passed on to consumers and 50 per cent to be
borne by the government. This will yield around Rs20 billion additional
revenue to the government every year and the remaining portion will go
to the new buyers of the PPL.
PPL is providing subsidy to every consumer of the
economy. This is around Rs40 billion. This is unbearable. So the
government wants to change that in five years, the secretary said.
Balochistan had also been protesting over gas
development surcharge and royalty payments to it and added that revised
GPA with PPL at higher rates would increase provincial share
significantly because royalty is calculated on 12.5 per cent of the
total well-head price.
The domestic sector was currently enjoying subsidy of
around 23 per cent, which has been scaled down to 19 per cent through
rationalization of tariff from March 1.
The prices of first 100 units would remain unchanged
at Rs66.86 per million British thermal Unit (MMBTU). The tariff for
101-200 units (cubic meters has been increased by 7.9 per cent from
Rs93.39 toRs.100.93 per MMBTU. The rate for 201-300 units has been
raised from Rs138.93 to Rs161.16 per MMBTU up by 16 per cent.
A 20 per cent raise has been made to consumers using
above 301 units. The price for 301-400 units has been increased from
Rs168.1 to Rs201.45 per MMBTU and for those using 401 units and above
from Rs181.54 to Rs217.85 per MMBTU. Around 60 per cent increase in gas
prices has already taken place since 1990 but these prices remained
frozen for three years before the present government took over.
The lopsided gas tariff structure needed to be
rationalized through market-based mechanism to attract investment for
the development of gas structure, as Pakistan was a gas-rich country.
The cost of service would be the basis of tariff
structure and domestic sector around the world had to pay more because
power and industrial input required to be made globally competitive
through withdrawal of cross-subsidies those sectors were providing to
the domestic sector.
From now on, the gas prices would be based on
wellhead price plus transmission and distribution cost plus return to
utilities besides the 15 per cent taxation. The prices would be revised
every six month and cost of service will be the basis for tariff which
means that bulk consumers would be provided gas at cheaper rates than
small or retail consumers.