Government may endorse Ogra's suggestion of increasing gas price

Federal government is likely to endorse Ogra's recommendation to increase gas prices to retire the circular debt of Rs181 billion in the wake of a wide gap between the average prescribed gas price and the weighted average sale price. Petroleum Division issued a statement on Wednesday that proposed 214 percent increase in domestic gas prices is neither definitive nor has it been accorded approval at any forum.

"It is the Federal Government's prerogative to determine the final price after a consultative mechanism which primarily includes the forum of the Economic Committee of the Cabinet (ECC) and later the Federal Cabinet. The views/suggestions and input of Ministries/Divisions most likely to be impacted by such a hike such as Food, Power, Textile, Industry etc are taken into account before any decision on prices is made," the statement said. On Tuesday, Oil and Gas Regulatory Authority (Ogra) determined the estimated revenue requirement of gas companies-Sui Northern Gas Pipeline Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL) for six months (January to June 2020) and thereby allowed SNGPL and SSGCL to increase prices to meet the revenue requirements of Rs 244 billion and Rs 275 billion respectively.

Ogra observed that different retail prices being charged by the SNGPL and SSGCL for some categories of retail consumers violate the prevalent government's policy of maintaining uniform prices for retail consumers throughout Pakistan.

Ogra has made the highest increase for domestic gas consumers falling in first slab of SSGCL by 214 percent and 192 percent for SNGPL consumers (lower due to providing liquefied natural gas (LNG) in winter season).

The regulator argues that all the classes of consumers should at least pay the average cost of service or the average prescribed price. The regulator suggested that the sale price effective January 1, 2020 be adjusted in such a manner by federal government that the revenue requirement as determined by (Ogra) be fully met.

First two domestic slabs of both gas companies are currently highly subsidized compared with actual cost of service of indigenous natural gas or the cost of RLNG, and the cost of alternative fuel i.e. LPG.

Accordingly, in respect of existing first two slabs (upto 100 cubic metres per month), the prescribed price has been determined at 50 percent of average cost of service. The next slab (up to 200 cubic metres per month), prescribed price has been determined at 75 percent of average prescribed price. The existing fourth slab (upto 300 cubic metres per month) has been aligned equal to average cost of service.

For SNGPL consumers, Ogra has proposed Rs 1273/MMBTU and Rs 1679/MMBTU (an increase of 15 percent over the existing prices) for domestic consumers (upto and above 400 cubic metres per month users). For similar category of domestic consumers slabs of SSGCL have been reduced to Rs 1092/MMBTU and Rs 1440/MMBTU. The slight reduction is due to rationalization of highly subsidized domestic slab rates and the resultant enhanced recovery of the revenue requirement.

The slab rates of Roti Tandoors all over Pakistan have also been rationalized which is highly subsidized. The enhanced recovery from Roti Tandoor and fertilizer category of consumers in Sindh and Balochistan has resulted in reduction in prescribed prices of the remaining consumers' categories including CNG, commercial, industrial, captive, power, cement and special commercial.

In Punjab and KP, consumer categories including CNG, commercial, industrial, captive, power, cement and special commercial absorbs the remaining shortfall of the determined revenue requirement for first six months of current financial year 2019-20 across the board based on the existing prices.