WEDNESDAY JULY 06: Gas tariff hike proposal: Ministry asked to seek Cabinet approval

ISLAMABAD: Prime Minister Yousaf Raza Gilani has, reportedly, directed the Petroleum Ministry to seek consent of the Cabinet on the proposed natural gas tariff hike, ranging from 15 to 96 percent, to be notified from July 1, 2011. Sources said that the Petroleum Ministry had sought Prime Minister's approval to raise natural gas tariff in the light of instructions by the Economic Co-ordination Committee (ECC) of the Cabinet.
The Prime Minister, however, refused to take responsibility, for the unpopular proposal, on his shoulders, and directed the Ministry to place it before the Cabinet. The ECC had suggested that President Asif Ali Zardari should also be taken on board before the decision was implemented. "We are now placing the summary before the Cabinet, in addition to the understanding reached with Compressed Natural Gas(CNG) Association," sources added.
According to the understanding between the CNG Association and Petroleum Ministry a tariff difference of 40 percent between the prices of CNG and petrol will be ensured. Official documents show that the ECC was informed that in terms of section 8(1) of the Oil and Gas Regulatory Authority (Ogra) Ordinance, 2002, the Ogra determines the estimated revenue requirements of SSGC and SNGPL, being its licensees.
Section 8(4) also empowers Ogra to notify the prescribed prices as sale prices, if Federal Government fails to advise sale prices within 40 days. Consequently, Ogra proposed increase of 13.55 percent with effect from 1st July 2011 for all sectors, except Liberty Power for which an increase of 27.41 percent had been proposed.
Ogra requested the federal government to advise category-wise minimum charges and sale prices based on the revision of prescribed prices within forty days of its decision. Consequently, gas pricing was discussed in a meeting held on June 29, 2011, under the chairmanship of the Minister for Petroleum and Natural Resources, wherein it was observed that gas prices in Pakistan were generally much lower than other alternative fuels in all sectors and the need for its rationalisation was underscored.
The meeting proposed the rationalisation of gas prices for approval of the ECC on the following lines: (i) 15 percent increase in gas sale prices for domestic (including bulk domestic consumers), commercial, cement and power plants of WAPDA/KESC; (ii) 18.43 percent increase in gas sale prices of industrial sector (including textile industry), captive power and fuel stock of fertiliser plants to equate prices of these sectors with the price of gas for Wapda/KESC to bring uniformity;(iii) 36.26 percent increase in gas sale price for IPPs to equate it with gas sale price for Wapda/KESC; (iv) 69.05 percent increase in gas sale price for CNG stations to bring the consumer price of CNG at 65 percent parity of petrol; (v) 96.06 percent increase in gas sale price for fertiliser feed stock for old plants for gradual elimination of subsidy; (vi) no change in gas sale price for feed stock for new plants and for additional volumes allocated for BMR; (vii) no gas allocation at subsidised rate in any form for the fertiliser sector in future; and (viii) no bulk meter connections will be provided to housing colonies.
Further, bulk meters at existing colonies will be gradually shifted to standalone meters at individual premises. The meeting was further informed that proposed increase of 15 percent for domestic, commercial, cement and power plants of Wapda/KESC was almost in line with Ogra's determination of 13.55 percent, while the proposed increase of 18.43 percent for industrial sector, captive power and fuel stock of fertiliser plants and 36.26 percent for IPPs had been made with the view to equate the same with proposed gas prices for Wapda/KESC power plants and to remove the price distortion in these sectors.
During discussion, it was observed that no rationale had been given for proposed increase of 69.05 percent for CNG stations and 96.06 percent in feed stock for old fertiliser plants. Some Cabinet members argued that these increases would have serious implications. Therefore, they needed to be further deliberated upon and evaluated to enable a well informed decision. It was apprehended that proposed rationalisation of gas prices would not only badly hit the common man, but would also reduce the electricity generation capacity to the extent of 400 mw. It was agreed that as it was a major decision, it needed to be taken to the Cabinet.
On a query, it was explained that the Sindh High Court had already stayed the implementation of the Ogra decision for enhancing the gas prices by 13.55 percent. Besides, SNGPL had also moved the Lahore High Court (LHC) against Ogra decision and it was apprehended that LHC would also grant a stay order. It was stated that because of intervention of courts, immediate implementation of Ogra decision was not possible. Therefore, there was time for further evaluation of the proposed rationalisation of gas prices.
It was also suggested that it would be more appropriate to apprise the Prime Minister and the President, before taking a decision on this issue. The ECC while agreeing, in principle, to the rationalisation of gas prices and to eliminate distortions in tariff for power plants of Wapda/KESC, industrial, captive and IPPs sectors, directed further evaluation of the proposal and its submission to the Cabinet for a final decision.