For the longest time, two-thirds of Pakistanis paid significantly more for their heating requirements than the other third. This went on till at least November 2023, when natural gas pipeline prices were rationalized to some meaningful extent – that too by the introduction of fixed rates for domestic consumers across categories. Even after two back-to-back rounds of substantial price increases – 60 percent of urban natural gas consumers still pay less than firewood used by rural Pakistan.
Firewood at today’s rate of Rs1172/40 kg translates into a cost of $6.2/mmbtu. The price paid by the lowest consumption slab in the protected category is Rs3.57/mmbtu, even after a mammoth rise in the last few months. For better context, the price for lowest consumption slab was less than a dollar per mmbtu till last year. The delta in FY17 was the highest when firewood heating cost was $8.75/mmbtu – whereas domestic lowest slab costed less than $0.6/mmbtu. It is only now that the overall domestic natural gas price has gone past firewood in terms of heating value. This is course correction and should be viewed as such.
Imagine the electricity prices going up by as much in as little as four months. Why has there not been a public response is not by accident. Unlike electricity which concerns 90 percent of all households, piped natural gas concerns a little under one-third. And decades and decades of criminally underpriced natural gas for domestic consumption has not gone un-thanked, it appears.
Also, the fact that any alternatives are still considerably expensive than piped gas, is not lost upon anyone either. LPG today costs more than $21/mmbtu in terms of heating value. In this context, of all price rationalizations, natural gas should be the easiest. That is where the criminal negligence of yesteryears hurts the most. The gas sector today is almost as big a headache as the power sector – in terms of receivables, where the authorities have continuously failed to implement weighted average cost of gas, despite the relevant law in place.
You keep seeing industries running from pillar to post to demand competitive rates, which are often higher than the average cost of distribution. The cross-subsidy to inefficient users has gone up for far too long – especially when there is no sense of equity in terms of the recipient of the massive cross-subsidy. Efficient pricing is the way to go, and while social considerations should never be undermined – in case of natural gas, the disparity with competing fuels is still overwhelmingly in favor of urban consumers.
The government has recently, in consultation with the IMF agreed to phase out natural gas usage for captive generation – which is the right thing to do. The other right thing is to do the homework on the weighted average cost of gas mechanism, which has been pending for nearly two years. Any further adjustment in gas prices should be done with an aim to eliminate cross-subsidy.
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