The gas saga

On June 2, 2023, Ogra (Oil and Gas Regulatory Authority) set an average price for both the Sui companies. The higher average price, which was Rs 1350 per MMBtu, was supposed to be implemented.

The determination was sent to the federal government, but the PML-N-led government chose not to implement the increase, fearing a political backlash. The IMF kept pressuring to reduce circular debt (CD) buildup and increase gas prices more logically.

Even after the government failed to advise Ogra rats, which require a mandatory period of 45 days, a summary was moved during the tenure of an interim government from the Petroleum Division to ECC (Economic Coordination Committee (ECC) of the Cabinet, suggesting gas tariff changes: non-export captive and process from Rs 1200 to Rs 2600 per MMBtu and export captive and process from Rs 1100 to Rs 2050 per MMBtu.

The blends were also suggested to be 60% RLNG and 40% natural gas for SNGPL and 10% RLNG and 90% natural gas for SSGC, both industrial and captive consumers. (Basically, one of the members of current interim setup who represents a specific sector tried to outsmart the system by using general non-export industries to cross-subsidize the export sector.)

It was also suggested in the summary that existing and new RLNG-only connections be converted to the same and specific RLNG-gas blends. (This was flawed as there is physically no gas available to blend with RLNG for ongoing and upcoming usage, and it would have raised grid capacity charges.)

Since the summary got leaked, some people from Karachi came forward speaking to the Minister of Energy to stop this nonsense and raised questions about non-export rates and the conversion of RLNG-only connections to blended rates, which eventually made sense to him. Finally, it was corrected with the direction of the cabinet as soon as the summary was presented.

A new summary was approved the same day, and since it already had the nod of the Federal Cabinet, it was passed, and the tariff was notified on 8.11.2023 with effect from 1.11.2023, setting the tariff for export captive at Rs 2400 per MMBtu and non-export captive at Rs 2500 per MMBtu, general industries’ process at Rs 2200 per MMBtu, and export process at Rs 2100 per MMBtu.

Surprisingly, a leading association came forward supporting the blended tariff, disguising the fact that export yarn without value addition tantamount to exporting gas with lowest value addition and on the other hand we are importing RLNG to meet the shortfall. There have been conflicting appeals in different newspapers from the same association which further exposed the vulnerability and hidden agendas.

What can be learned from the above adventurous journey of gas tariff:

1- Captive Power Plants should have been 100 percent RLNG on both networks, as it would still be cheaper than the grid, and the industry process tariff should be lower.

2- Whenever given a chance, large industries can influence and manipulate the system for their own personal gain, and if it were not for some sane people and the Minister of Energy, they might have gotten away with it.

3- Manipulation for personal gain should not be allowed in the name of gas reforms. If RLNG-only connections were converted to a lower blended rate, the entire large industry using 1MW and above from the grid would also go for self-gas-based generation, further raising electricity tariffs for the common middle-class and middle-sized industries, ensuring a rise in capacity charges, and complicating the power sector’s situation.

The vulnerability of the power sector has been clearly exposed. IMF or no IMF, SIFC (Special Investment Facilitation Council) must instruct the concerned to look into this multi-episode non-Netflix drama series that has been ongoing until today.

Everyone wants to manipulate the system, and captive power still came out as winners while grid users remain sore losers as indigenous gas was still not diverted to grid power plants.

Reforms in the disguise of personal gains for selected players must be stopped, and genuine reforms must be implemented. The integrity of the system and the well-being of the common middle-class and middle-sized industries must take precedence over individual interests.

Copyright Business Recorder, 2023