Dr Asim Hussain is vigorously working towards the rationalisation of natural gas prices in Pakistan, and yesterdays meeting of the Economic Coordination Committee (ECC) was another step in this direction.
Dr Hussain has long been pointing towards the loopholes in the gas tariff mechanism, showing his willingness to deal with it swiftly and smoothly.
Gas shortages, especially in the power sector, are partly responsible for the electricity crisis and the circular debt. A major policy flaw in gas usage has been its prioritisation - especially in the domestic and transportation sector.
There are hints that the government is considering increasing the domestic tariff slab by 15 percent from FY12. The political parties and the media at large are expected to cry foul, but the fact remains that natural gas tariffs for the domestic sector, which consumes 17 percent of the total gas, have been on the generous side since forever.
From the policy perspective, a 15 percent rise in domestic slab, may not immediately address the gas abuse issue, but still is a small step in the right direction.
The government is keen to restrict domestic gas usage for cooking purposes only, with the intent to encourage LPG for other usages. Efforts should be made to rationalise the domestic gas tariff on a periodic basis for efficient utilisation of this precious natural resource.
On the policy front, the Ministry has hinted at doubling the tariffs for feedstock gas for fertiliser manufacturers - a long standing demand from the textile sector, which was lately joined by the fertiliser firms as well. Feedstock gas has a 14 percent share in total gas consumption, which has long been subsidised to keep fertiliser prices at a reasonable discount to international prices.
Such is the extent of subsidy on feedstock gas that even a 100 percent proposed increase would not eliminate the cross subsidy at once, as currently the industrial tariff is about four times higher than feedstock tariff.
It remains to be seen whether the government would periodically phase out the entire subsidy on feedstock gas. Considering the impact it could have on fertiliser prices, it is best advised to gauge the farmers response and act accordingly, but phased subsidy elimination should be the key.
Another proposed action that is likely to cause a stir across the country is the rationalisation of CNG prices and gradual reduction in the differential between CNG with petrol prices. The Minister has strongly expressed his displeasure of the CNG policy and is committed to bridging the gap between CNG and petrol prices. The idea is to narrow the gap between petrol and CNG prices, from existing 45 percent to 65 percent of petrol rates and then reviewing it six months later to further rationalise the prices.
The step is likely to discourage CNG usage in private transpiration as it would kill the incentive. Granted it would be heavy on a few pockets, but CNG is not a directed subsidy for the underprivileged anyway. Should things go as planned, power sector woes and the pressure on circular debt is also likely to ease.
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