Govt raises gas prices amid Rs2tr loss
ISLAMABAD: In the face of a staggering loss of Rs2.1 trillion in the gas sector, Minister for Energy, Muhammad Ali, justified the recent increase in gas prices as being in the best interest of Pakistan. He explained during a press conference alongside Minister for Information and Broadcasting, Murtaza, that the government plans to provide a subsidy of around Rs384 billion to gas consumers.
Ali revealed that there had been a loss of Rs879 billion in the gas sector, and this loss had now swelled to a colossal Rs2,100 billion across the entire gas supply chain. The energy minister underlined that the government had no choice but to raise gas prices in order to rescue gas utilities from the looming revenue deficit for the fiscal year 2023-24.
He noted that the diversion of imported gas and the inadequate gas pricing by the previous government had led to a circular debt of Rs2.1 trillion, excluding interest. Ali expressed hope that the adjustment in gas prices, in accordance with decisions by the Oil and Gas Regulatory Authority (OGRA), would help curb the growth of circular debt, mitigate inflation, control interest rates, and reduce fiscal deficits. Furthermore, he anticipated that the new gas prices would attract international companies to invest in exploring indigenous oil and gas.
Subsidies in the gas sector
The sectors set to receive subsidies include domestic, tandoor (clay oven), and fertiliser. The energy minister clarified that the objective of providing subsidies was to shield consumers from the impacts of inflation. However, experts have pointed out that these are essentially cross-subsidies, meaning they are being funded by consumers, and the government does not have to tap into the national treasury.
Throughout the saga of gas price adjustments, the government has remained silent about the fertiliser and textile barons who were supposed to pay over Rs500 billion in Gas Infrastructure Development Cess (GIDC). These two sectors, despite receiving substantial subsidies, refused to pay the GIDC, which was intended for funding major pipeline projects. As a result, the government’s plans to execute the Pakistan Gas Stream Pipeline project in cooperation with Russia were thwarted.
While the Supreme Court directed the defaulters to pay the cess amount in instalments, these two influential sectors managed to obtain stays from lower courts, avoiding any payments to the government. Meanwhile, they continued to receive multibillion rupees in subsidies.
The fertiliser sector, in particular, has been accused of exploiting farmers. While receiving gas at lower prices compared to other sectors, they raised fertiliser prices and collected cess taxes from farmers without remitting them to the government.
Now, the interim government is touting its plan to provide a Rs384 billion subsidy to various sectors. However, it’s worth noting that this subsidy is also being funded by gas consumers through a cross-subsidy mechanism.
The energy minister, detailed that the domestic sector would receive a gas subsidy of Rs139 billion, the fertiliser sector would receive Rs45 billion, and Rs200 billion would go to Roti tandoors (clay ovens). He assured that the monthly bill for protected class consumers would remain below Rs900, even when consuming 0.9 hm3 of gas per month.
Regarding the fertiliser sector, the energy minister explained that the gas price for fertilisers was set at Rs580 per mmbtu, in line with the cost from Mari Gas. He clarified that the government had increased the price by only Rs70 compared to the previous year to protect farmers and ensure food security in the country.
The government had developed a Regionally Competitive Energy Tariff (RCET) in consultation with all key stakeholders, taking into consideration the situations in India, Bangladesh, and Vietnam—countries that had emerged as net exporters of goods and services.
The government’s focus is on conserving gas in sectors that are inefficient or have alternative fuels. Notably, over 50% of commercial consumers are already using liquefied natural gas (LNG), and over 27% of compressed natural gas (CNG) connections are based on re-gasified liquefied natural gas (RLNG). Moreover, 57% of domestic gas connections fall into the protected category, entitling them to receive subsidised gas.
Ali emphasised that a fixed monthly bill of Rs400 had been introduced to ensure affordability. However, this fixed bill has now been increased from Rs10 to Rs400 for the 5.7 million gas consumers. As a result, around 93% of gas consumers are paying a gas price lower than the actual cost of gas.
While 57% of households primarily consume 31% of the total gas, they only account for 11% of payments. In contrast, the upper class, representing 3% of gas connections, use 17% of the gas and incur a 39% billing rate.