ECC informed about the ‘benefit’ of proposed move: Hike in gas tariffs likely to yield Rs666bn revenue

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has been informed that the proposed increase in gas tariff of various categories of consumers from 1st July 2022 is expected to generate revenue of Rs 666 billion.

The meeting of the ECC presided over by Finance Minister Miftah Ismail was informed by the Ministry of Energy that the expected increase in revenue on account of gas tariff would be SNGPL Rs331 billion and SSGCL Rs 335 billion as against OGRA determined revenue of Rs546 billion.

Considering the revision in consumer gas sale prices, the resultant surplus revenue estimated to be at Rs 120 billion would be adjusted by OGRA in the review of prescribed prices of both the gas companies for recovery of prior years’ revenue shortfall respectively.

The ECC meeting in the summary was informed that OGRA issued its determination of estimated revenue requirements for fiscal year 2022-23 on 03.06.2022 for both SNGPL and SSGC.

According to the said determination, SNGPL requires revenue of Rs261 billion and SSGCL requires revenue of Rs 285 billion in 2022-23. The OGRA has not allowed previous year revenue shortfall of Rs265 billion and Rs 245 billion for SNGPL and SSGCL respectively.

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This disallowance would result in continuation of the stock of circular debt in future.

The recovery from consumers is based on OGRA-notified tariffs for various categories and slabs of consumers. Such notification is issued by OGRA based on the advice of the federal government.

The category wise consumer gas sale prices/tariff for natural gas reflects various socio-economic polices of the federal government including supply of cheap fuel to households, control of fertilizer prices and promotion of exports. Full cost recovery from end consumers has not been possible from time to time because consumer gas prices were not revised in-line with revenue requirements determined by OGRA. Since fiscal year 2015-16, the consumer gas prices were not adequately revised consistent with revenue requirements determined by OGRA.

This resulted in accumulation of revenue shortfall/tariff differential amounting to Rs 547 billion (SSGCL Rs245 billion, SNGPL Rs301 billion) as of March 2022. This is a major portion of the gas sector circular debt of Rs1,232 billion. If the current consumer gas prices are kept unchanged, SNGPL and SSGCL would face a combined revenue shortfall of Rs165 billion during fiscal year 2022-23, further increasing the circular debt and further straining the ability of the gas importing companies and exploration and production companies.

The ECC was informed that the Petroleum Division has proposed revision of the category-wise consumer gas sale prices; (a) as there is not enough indigenous gas available for provision to the domestic sector particularly during winters, domestic segment consumes 47 percent of the indigenous gas and due to this, every winter costly RLNG has to be diverted to the domestic sector for provision on subsidized rates, leading to accumulation of circular debt.

The Ministry stated that (i) existing slab structure of 7 slabs is being revised into 5 slabs by consolidating last 2 existing slabs; (ii) the slab upto 0.4 hm3 is proposed to be merged with slab upto 0.5 hm3 and the rate for the merged slab is proposed to be Rs173/mmbtu. There will be no minimum charge in the domestic category; (iii) no change is being proposed in the price for the slab up to 1 hm3; (iv) the above (i to iii) will protect the poorest consumers; (v) preceding slab benefit is proposed to be maintained up to consumption of 1 hm3. Beyond the threshold of 1 hm3, preceding slab benefit will be discontinued; (vi) the last 2 slabs with highest consumption i.e. consumption up to 3 hm3 and above; representing the affluent consumers may pay closest to the average cost of RLNG; (vii) highest consumption slab may not be allowed the benefit of lower slabs; in order to ensure this, it is proposed that if the consumption in any of the preceding 11 months and the billing month exceeds the level of 2 hm3, the rate of the highest slab will be the applicable.

This mechanism will be applied prospectively with effect from 1st July, 2022 in such a manner that the number of preceding months for this calculation will increase from zero to 11 by June, 2023; (viii) bulk consumers will be charged at the average price prescribed by OGRA.

(b) Special commercial (Roti Tandoor) is proposed to consolidate the slabs because 95 percent consumers fall in the last slab of existing structure. It is proposed that there will be only one slab and the rate for all Roti Tandoors will be equal to the average prescribed price (Rs928/mmbtu).

On commercial consumers a raise of 81 percent in existing price has been proposed, although the alternate fuel for commercial consumers is LPG, which is four times the cost of indigenous gas in terms of energy units, however, the proposed raise in price is still much lower than LPG price (58 percent of LPG price only). For general industry (export & non-export), the export industry (erstwhile zero-rated industry) in Punjab is provided RLNG on subsidized rate of $6.5/mmbtu subject to provision of budgeted subsidy. For the next fiscal year the amount of subsidy allocated for this purpose in the budget is Rs40 billion and Finance Division has advised that the rate charged to the Export Industry in Punjab may be adjusted accordingly. Consequently, the existing price of $6.5/mmbtu is proposed to be revised to $9/mmbtu.

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The non-export industry in Punjab is charged the full price of RLNG. Through a separate proposal the priority order is going to be adjusted to make it possible to provide indigenous gas to the export and non-export industry in Punjab.

Whenever that becomes possible the export and non-export industry in Punjab will be charged the same rates for supply of gas as notified by OGRA.

On the basis of the above, for indigenous gas being provided to the industries in the other provinces following principles are proposed: i. Captive Power and Process consumers of non-export industry may be charged at Rs1,650/mmbtu ($8/mmbtu); ii. Captive Power units and Process consumers of export industry may be charged at Rs1,450/mmbtu ($7/mmbtu).

The price of fertilizer feed didn’t witness much increase in the past because of its ultimate impact on farmers. The price is proposed to be around 50 percent of the average prescribed price whereas the price for fuel gas use has been proposed to be twice of average prescribed price i.e. Rs1,857/mmbtu.

The most efficient plants with over 60 percent efficiency are operating on imported gas whereas scarce natural gas is being provided at much lower cost to the less efficient power plant. In order to encourage efficiency in the merit order while protecting the pass-on impact to consumer, the existing tariff has been proposed to be equated with average prescribed price.

In order to control the consumption of diminishing indigenous gas reserves, CNG and cement sector are lower on the merit order due to the overall consumptions and the fact that most of the CNG stations have shifted to RLNG. Similarly, most of the cement has shifted to alternate fuels or is operating on RLNG. The price for CNG and cement sector is, therefore, proposed to be set at Rs2,321/mmbtu. The proposed tariff reflects an increase of 70 percent and 82 percent over existing CNG and Cement tariff.

There is no change being proposed in the minimum charges of any of the consumer categories except domestic.

1. Petroleum Division submits following proposals for consideration of the ECC of the Cabinet: i) The proposed increase in consumer gas tariff as proposed in para-6-7 above may be approved. ii) The proposed price increases for power and fertilizer consumers would also be applicable on similar consumers of Mari Petroleum Company Ltd and Pakistan Petroleum Ltd; (iv) OGRA may determine and notify the RLNG Sale price based on the prevalent guidelines issued by the government from time to time on “Sale Price of RLNG” for the RLNG consumers of SSGCL, SNGPL and PLL; (v) during the mid-year review of estimated revenue requirement (ERR) for 2023, OGRA may include the cost of RLNG diversion in the determination of Review of Estimated Revenue Requirement (RERR).

Copyright Business Recorder, 2022