Cross-subsidy in gas tariff erodes industries’ competitiveness, says Sindh minister

KARACHI: A provincial minister said on Wednesday that industries are facing high gas tariff and cross-subsidisation, which is contrary to international norms and hurting the country's competitiveness.

Muhammad Younus Dagha, the Sindh minister for revenue, industries and commerce, said worldwide gas tariff for industries is subsidised while the residential consumers are subjected to higher cost but in Pakistan, the opposite is happening.

"Structural changes in consultation with business community are needed to rectify all issues in the energy sector so that the industries alone could not bear the burden of exorbitant gas tariff hikes," Dagha said at a meeting with the Karachi Chamber of Commerce & Industry (KCCI).

"Cross-subsidisation by raising tariff for industries and keeping it down for others is not a wise move. Industries should only be burdened with gas cost while cross-subsidy should not be applied to industries."

Dagha also blamed the lack of unity among the industries in Karachi for their weak voice in energy crises, saying that other cities like Faisalabad and Lahore have a unified voice and succeed in compelling the government to fulfill their demands.

The minister said the provincial government has a very limited mandate in energy crises but he will try to arrange a meeting of representatives of KCCI and other industrialists with Chief Minister Sindh to suggest structural changes and take up the matter with the federal government.

Dagha agreed with KCCI chairman that the case of incremental consumption of electricity during winter season has not been presented properly to IMF as it was logical to utilise the idle capacity which would bring down the circular debt.

He advised the business and industrial community to approach the IMF's Islamabad Office to submit their reservations about misrepresentation of incremental consumption case.

Dagha said the citizens of Karachi pay at least Rs3 to Rs5 extra per unit to K-Electric (KE), the city's sole power utility, on account of fuel cost adjustment every month as compared to other power distribution companies (DISCOs) because of KE's obsolete power generation plants.

He said that KE needs to be unbundled, as the electricity supply system in the rest of the country is separated into distribution and generation.

"The electricity supply system stands completely unbundled across Pakistan where distribution and generation are treated separately but KE is the only utility service provider which solely generates and distributes electricity to consumers."

Zubair Motiwala, chairman of the Businessmen Group (BMG), said that the overall industrial performance has declined drastically since the start of November 2023, as the gas offtake of Sui Southern Gas Company (SSGC) to industries has declined by more than 25 percent due to the exorbitant cost of gas.

“You’ll not find a single example all around the world where industries have been subjected to gas price hike of 130 percent in one go,” he said, adding that it seems that the government wants to close down the industries in Karachi who are dependent on gas for production and cannot switch to any other fuel due to limited space.

Motiwala said raising gas tariff to such an unbearable level was a sheer injustice to a city which represents 10 percent of country’s population and contributes 54 percent exports and 68 percent revenue to the national exchequer.

He said that the gas tariff hike was done with an excuse of dealing with circular debt of Rs400 billion, which was not caused by the industries but by other sectors including fertilizers and domestic sectors.

“The circular debt issues should have been brought down in phases to save the industries from complete closure instead of imposing unbearable gas tariffs for dealing with circular debt in one go.”

Motiwala also criticised the IMF for rejecting the request of providing electricity at lower rates during four months on incremental consumption, saying that it was a logical move to utilize the idle capacity which would reduce the circular debt and create a win-win situation for the economy.

“It appears that the case has not been properly presented to the IMF otherwise they would have certainly agreed to provide electricity at lower tariffs on incremental consumption as it would ensure that industries stay operational.”

He feared that the industrial performance and the exports would drop further and the import-substitution industries would shut down if relief in the form of reduced energy tariffs is not announced at the earliest.