The Oil and Gas Regulatory Authority (Ogra) has recommended that the government increase gas prices by a whopping 213.7 percent with effect from next month. This recommendation is premised on the revenue requirement of the two gas companies - Sui Southern projected to collect an additional 275 billion rupee revenue and Sui Northern projected to collect an additional 244 billion rupees.
In September 2018, Prime Minister Imran Khan approved an average gas tariff hike of 46 percent with domestic consumers subjected to a 186 percent rise while commercial consumers were to pay 26 percent higher tariff. The raise in gas tariffs raised the costs of production of the manufacturing sector (large, small and medium) which was passed onto consumers - domestic as well as international - with negative implications for exports. The rationale for the 2018 raise provided by cabinet members, including the prime minister, was that it was necessitated by the failure of the previous PML-N administration to raise tariffs during its tenure in line with market forces (domestic and international) which required continuing to provide subsidies that the government's treasury could no longer bear. At the time the business community lamented the increase and maintained that gas tariff increase would not only be the precursor of an increase in the price of electricity but also increase the cost of doing business. In other words, whatever the improvement in Pakistan's ranking maybe in ease of doing business this year if the cost of business rises domestic and international sales are also negatively affected.
Ogra's recommendation is to raise tariffs for domestic consumers of SSGCL by 213.7 percent while SNGPL domestic consumers have been recommended to be subjected to a tariff raise of 192 percent as Northern areas are being provided imported Liquefied Natural Gas during the winter season. Fertilizer sector would pay 135 percent higher gas tariff and tandoors would pay 31 percent higher rates - both would be passed onto consumers.
The question is why is there a need to raise tariffs by so much in a little over a year? The answer is that there has been no appreciable improvement in the gas sector's performance and hence as in the past reliance is on raising tariffs to meet international donors (read IMF) cost recovery condition. The gas distribution and transmission system, like in the electricity sector, is crumbling, and the government has yet to focus attention on improving the delivery system; besides the incidence of unaccounted for gas (UFG) is higher than international levels which remain understated by Ogra otherwise the rate rise would have been even higher. It is unfortunate that so far there is no major project under way or under preparation which envisages improving the distribution and transmission network of both gas and electricity.
Why has the PTI government focused on implementing higher tariff rates for domestic consumers relative to other sectors because implicit in this is the distinct prospect of public unrest? This decision perhaps stems from the fact that large-scale manufacturing sector has been witnessing negative growth for over a year and the apprehension is that a higher tariff would further erode productivity. However, one is baffled to understand why the PTI government did not raise rates last year by more than it did as at that time it had much greater political capital than today when electricity and gas rates are sky high with large layoffs by the LSM sector and downstream industries. Raising tariffs by such a massive percentage is going to be a hard sell and any political government must strike a delicate balance between what is required and what is doable and sadly we are focused only on the former.
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