Gas tariffs and reforms—II

However, some increase in small and medium category tariff will have to be, willy-nilly, done to cover the costs. In Bangladesh, minimum monthly charge is PkRs 1380-1500 per MMBtu for smaller single and two burner consumers.

Average gas tariff in this category has been estimated at PkRs. 1364 per MMBtu. Bangladesh prices in the lower tariff category are 455-124% higher. There are social and political limitations in applying high increases in gas tariff of this category.

Gas tariff and reforms—I

However, gas bills amounts for lower consumption categories aren’t very high as compared to the electricity bill. A small consumer gets an electricity bill of Rs.5000/-as compared to Rs 500-700 for the gas.

Increase in gas tariff in small category may not be as hurting as it may be in case of electricity. The number of slabs could be reduced to three or four. Minimum tariff in residential sector may be increased to Rs 400.0 per MMBtu. Middle tariff could be around Rs 1000.0 per MMBtu. Upper-middle tariff could be Rs 2000.0 per MMBtu and high-end at Rs 4500.

Fertilizer sector tariff

Fertilizer sector tariff in Pakistan is Rs. 512 per MMBtu. In Bangladesh, fertilizer sector gas tariff is PkRs. 1212 per MMBtu, which is 240 % higher than in Pakistan.

Strangely, a top fertilizer manufacturer is charged only 0.7 USD (Rs 200 only per MMBtu). It has a very old plant under a contract but till when can it be extended? In India, fertilizer sector is not subsidized through gas sector; they have a separate fertilizer subsidy system.

There is a case for doubling the existing fertilizer gas tariff. We provide the following details of the implications of this issue and approaches thereof.

Apart from life-line consumers and other low income groups’ consumer tariff issue, there is a major source of anomaly in gas tariff which arises from very low gas tariff traditionally awarded to the fertilizer plants.

Subsidy to fertilizers is a desirable issue, but the question is from where it should be financed? Should it be financed from the agricultural budget or from gas consumers? Cross-subsidy to fertilizer plants has been causing circular debt and on consume gas tariff.

Gas subsidies are not liked by IFIs and other international bodies, while agricultural subsidies have been common in Europe and are understood. Thus transferring the cross subsidies from the gas sector to agriculture would be a desirable step.

There are anomalies in fertilizer retail prices as well. Fertilizer plants get gas at varying tariff but the effective market price of fertilizer bags to farmers is almost the same. Intermediaries siphon off the price anomalies.

Intermediaries are the same hoarding class which manipulates prices of other commodities like Sugar, Flour, and Cooking Oil, etc. In case of sugar, producers are involved in the booty but in the case of fertilizers, it is not known who the partners in the booty are?

Market price of Urea available to farmers is Rs 3800 per bag as against the prescribed prices of Rs 3210 per bag by FFC/Fatima, Rs 3600.0 by EFFERT, Rs 3411 per bag by RLNG-based fertilizer plants and Rs 3600.0 by FFBL. It has been estimated that intermediaries pocket varying amounts of Rs 200-700 per bag .

There are questions about the price setting by the fertilizer plants under a varying gas price. Reportedly, Ministry of Production exercises some kind of control on fertilizer pricing. The process, however, is not transparent as it is in the case of other regulators like Ogra and Nepra.

In the background of these anomalies, it has been reported that GoP is considering removal of gas price variations among various fertilizer plants and wants to bring it equal to the industrial gas tariff. It would be a welcome step.

This need not increase the fertilizer prices if, as mentioned earlier, the gas price subsidy is passed on to the agricultural sector and fertilizer price is regulated by Ogra. There may be other approaches of adjusting and passing on farmers subsidies under other heads and let the fertilizer price increase suitably.

Industrial and commercial tariff

Industrial growth in Pakistan has been stagnating. Exports are also linked with industrial gas tariff. Bangladesh industrial gas tariff is 189% higher than Pakistan. It appears that an increase of 47% (average Ogra determined increase) in industrial gas tariff should be affordable by the industrial sector as well as commercial sector. There is a scope for a comparable increase in commercial tariff as well.

Power sector

It may be desirable to keep tariff for power sector a bit lower than the uniform rate increase formula. Under uniform increase of 47%, gas tariff for power sector would come out to be Rs.1544 from the existing rate of Rs.1050.

A 10-15% discount may be considered if surplus from other areas are available. Captive power tariff should be 20% higher in order to discourage Captives. It is more of a tax evasion tool than a technical requirement in many cases.

Reforms in gas tariff procedure

There is a need to reform the current procedure for tariff award, which results in consuming time and delays in tariff award and Government acceptance and announcement of the same. WACOG may have to be adopted, although its final legal acceptance appears to be doubtful or in some confusion. With adoption of WACOG, it may be appropriate to adopt power sector approach and methodology.

Instead of DISCOs to be the buyers, an intermediary virtual organisation (IVOG) like CPPA-G may have to be created. IVOG will be virtually buying from gas producers and LNG importers and calculate a monthly WACOG.

OGRA can do this calculation instead of IVOG.OGRA will compute gas tariff a la NEPRA for Yearly, Quarterly and Monthly periods and do the adjustments. More simplification can be done on NEPRA procedures. Distribution cost may be announced yearly as a lump-sum rate. UFG can be added as per case and CAPEX allowances permitted separately.

Conclusion

Solar, Wind and Hydrogen appears to be the future. It appears that increased Thar coal utilisation (gasification) may not be possible in the immediate future as is evident from the minutes of JCC (China-Pakistan) meeting recently reported in the press. Solar and Wind would require balancing support from gas-fired power plants, which are under-utilized currently due to pricing and supplies reasons. We would continue to need gas for various sectors for at-least two or more decades.

The gas scenario appears to be bleak in the context of little new find of local gas. Political problems in Balochistan have added to this situation. Also, circular debt problem have affected the liquidity of our gas exploration companies like PPL and OGDC. Improvement in existing policies like Tight Gas policies is being done. It is hoped that some improvement comes by. LNG prices are high and spot market prices are unstable. We need gas for industrialisation and exports.

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Comparative Gas-LPG Prices: India, Bangladesh and Pakistan
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                      India           Bangladesh        Pakistan
Gas-Residential        5060              1364          1100-3100
LPG-Residential        5353              6797               5436
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Natural Gas Tariff 
Pakistan 15th Feb 2023 vs. Bangladesh-Pk.Rs/MMBtu
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                            Pakistan   Bangladesh   Bngl/Pakis %
Residential-0.25 hm3          200
0.6 hm3                       300        1364                455
1 hm3                         400        1364                341
1.5 hm3                       600        1364                227
2 hm3                         800        1364                171
3 hm3                        1100        1364                124
4 hm3                        2000        1364                 68
4 hm3+                       3100        1364                 44
Commercial                   1650        2310                140
Gen>industries               1200        2273                189
Captive Power                1200        2273                189
Export Oriented Industrie    1100
CNG                          1805
Cement                       1500
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Fertilizer
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General Off Take             510         1212                238
Dawood Hercules              510
Pak China                    510
Hazara Phosphate             510
Engro                        210
Fauji Fertilizer Bin qasim   510
IPP, WAPDA and Others        1050                           1061
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Source: Petroleum Division, Business Standard Dacca
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There are two pipeline projects, IPP (Iran-Pakistan Pipeline) and TAPI (Turkmenistan-Afghanistan-Pakistan-India) pipeline. Pipeline gas should be cheaper than LNG, although no details have been made public in this respect. Prices may have to be renegotiated as per new market conditions. IPP is almost ready on Iranian side. Pakistan is constrained due to international sanctions on Iran. In the context of improving regional middle-eastern environment, it may not be out of place to expect the powers that be to allow IPP project. It is hoped that TAPI also comes on stream in near future.

(Concluded)

Copyright Business Recorder, 2023