Govt to hike tariff to ensure no surge in gas sector circular debt in FY24

ISLAMABAD: The Economic Coordination Committee (ECC) that meets today (Monday) will ensure IMF benchmarks are met, including a zero hike in the gas circular debt in the current financial year 2023-24. This will be done by increasing the local gas tariff up to 173% for non-protected domestic consumers, 136.4% for commercial, 86.4% for export and 117% for the non-export industry.

Since there is no budgeted subsidy for even domestic, commercial, and industrial sectors, the high-end consumers will provide cross-subsidies to low-end consumers.

However, the failure to increase gas prices from July 1, has caused a loss of Rs50 billion during the July-September period to the gas sector. The loss will be bridged as the increase in the gas tariff would provide enough monetary solace to the authorities to cope with the loss. On this front, the IMF authorities have been sensitised.

The IMF has also been briefed that gas prices would be increased in such a way that there will be no further increase in the current circular debt in the financial year 2023-24, which right now stands at Rs2.9 trillion.

However, now authorities in the Petroleum Division would try their best to get the hike in the gas tariff implemented from October 1. And if the decision to enforce the gas price is delayed from the day of the ECC decision, meaning from October 23, then the system would further brave a loss of Rs15 billion.

However, from January 1, 2024, a further gas tariff increase would be implemented as under the law, the review in gas prices is carried out bi-annually.

As far as the fertilizer sector is concerned, historically, the price for feed gas is kept lower, so that farmers could get urea at affordable prices. Since the majority of fertilizer plants are on the MPCL (Mari Gas Company Limited) network where proposed prices for feed and fuel are Rs580/MMBtu and Rs1,580 per MMbtu respectively, the same prices are proposed for feed and fuel for fertilizer plants on the Sui network (FFBQL and Engro).

However, the cement sector will experience the maximum increase in the gas tariff by 193.3 percent to Rs4,400 per MMBtu, from the existing Rs1,500 per MMBtu. Then comes the CNG sector, which will also face the second-highest increase in gas tariff by 143.8 percent to Rs4,400 from Rs1,805 per MMBtu. This means that cement prices will further escalate and CNG will also be costlier than petrol. It also means that the CNG industry across the country will face a demise. The government, however, didn’t increase the gas tariff for roti tandoor, ensuring no increase in roti prices.

There is another proposal to ensure blended supply of local gas and RLNG to the power sector with to scale down the power tariff. But this proposal has not yet been furnished as gas companies have no space to provide local gas to the RLNG-based power plants. However, on this particular issue, both Petroleum and Power Divisions are still working.

The summary prepared by the petroleum ministry that is to be pitched today in the ECC meeting shows it has not spared the 4 protected domestic consumer categories as ostensibly it has not proposed to increase their gas tariffs but hiked their monthly fixed charges from Rs10 to Rs400 per month. More importantly, the Petroleum Division (PD) has also proposed to escalate the per month fixed charges for the first 4 non-protected domestic consumers by 117.4 percent to Rs1,000 from Rs460 per month from their gas tariffs increase by 50-150 percent. Also, to be increased are per month fixed charges for the remaining 4 non-protected domestic consumers, by 334.78%, to Rs2,000 from Rs460 per month part, increasing their gas tariff by 100-173 percent.

The devil lies in the details of the summary which states that from now onwards SNGPL shall offer a blend of NG (Natural Gas) and RLNG in a ratio of 20:80 to the non-export industry out of the estimated volumes for industrial consumers, both process and captive, as per petitions filed by SNGPL to OGRA for revenue determination.

The blend offered by the Sui companies shall be reviewed every quarter based on the availability of natural gas and RLNG. And SSGC shall offer a blend of NG and RLNG of 90:10 out of the estimated volumes for industrial consumers, both process and captive, as per petitions filed by SSGC to OGRA for revenue determination.

The blends offered by the Sui companies shall be reviewed every quarter based on the availability of natural gas and RLNG. If the private sector wants to import LNG and provide it to private sector under BtB arrangements as per Third Party Access Rules, it will have no room to do business in the country. As per the summary, the state-owned gas companies have cleverly tried to continue to have a hold on no-export (general industries) in the country, leaving no room for the private sector to make RLNG business in the country. It will also discourage future RLNG terminals from being built on BtB model as they will not be able to provide the RLNG to the industrial and corporate players in the country as gas companies will be able to provide them a blend of local and imported gas at cheaper rates.

Coming to the export industry, the summary says that currently, there is a wide price disparity between the industry operating on SSGCL and SNGPL networks. Industry in the north (operating on the SNGPL network) consumes a 50:50 blend of indigenous and RLNG for 9 months (Mar to Nov) and 100% RLNG for 3 months (Dec-Feb), averaging to the current tariff of $9.6/MMBtu (Rs2,790) over the year.

On the other hand, process connections of the industry in the south (operating on SSGCL) is being charged at Rs1,100/MMBtu. SSGC has recently started a supply of blend in proportion of 75:25 for captive use of gas, which approximates $5.9/MMBtu (Rs1,710).