Economy finds it difficult to digest

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 Rs46 billion.

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The entire subsidy would be withdrawn in three years starting with the current tariff increase.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.