Gas tariff surges by a whopping 235%

The government on Thursday approved an increase in natural gas prices in the range of 43% to 235% with effect from July 1 in a bid to recover Rs660 billion from the majority of domestic and all other categories of consumers.

Addressing a news conference, Minister of State for Petroleum Dr Musadiq Malik said, “Nearly half of the domestic consumers have been protected from the surge but the burden on the upper class has been massively increased.”

The decision was taken by the Economic Coordination Committee of the Cabinet (ECC) that passed on the maximum burden of 235% onto those domestic consumers who have monthly consumption of up to four cubic meters. They have now been clubbed with up to five cubic meter gas consumers who will also pay the same maximum price of Rs3,712 per MMBTU but for them, the increase will be 154% over the existing prices.

Headed by Finance Minister Miftah Ismail, the ECC also withdrew its two-day-old decision to award a wheat import contract at $439.4 per metric tonne and scrapped the deal due to falling global wheat prices.

“The ECC approved the proposed revision in consumer gas sale prices with direction to further reduce the gas rates for export and non-export industry (captive power) against the proposed rates by Rs100,” according to the Ministry of Finance.

The decision will take effect from July 1, subject to the endorsement by the federal cabinet. Earlier, the ECC had recommended an increase in the electricity prices by Rs7.91 per unit, which Prime Minister Shehbaz Sharif endorsed.

The ECC approved an increase in the gas prices for domestic consumers using up to 0.5 cubic meters per month of gas to Rs173 per MMBTU – an increase of 43%. Their exiting rate is Rs121. For consumers using up to one cubic meter of gas, the prices have been kept unchanged at Rs300 per MMBTU.

The government tried to protect nearly 50% of the consumers from the increase in gas prices, said Malik. He said that those using cooking ranges and multiple heaters and geysers should also pay a price at least closer to what the poor people are paying for Liquefied Petroleum Gas (LPG).

The gas rates for domestic consumers of two to three cubic meters per month have been increased to Rs696 per MMBTU – an increase of Rs143 or 26%.

The consumers of up to three cubic meters of gas will now pay Rs1,856 per MMBTU price, which is higher by Rs1,118 or 152% over the existing prices. The existing rate for this category is Rs738 per MMBTU.

However, a major burden has been passed on to consumers using above three cubic meters of gas a month. As against their existing rate of Rs1,107 and Rs1,460 under two different slabs, a new single slab of Rs3,712 per MMBTU has been introduced for them.

The preceding slab benefit has also been restricted up to one cubic meter consumption, which means that higher consumption will be penalised. The domestic consumers of the two highest slabs will now pay a price that will be closer to the imported RLNG average price.

The government reduced the number of domestic consumer slabs from seven to five by merging the last two slabs and by merging the up to 0.4 cubic meters slab with 0.5 cubic meters. The new rate for the revised first slab is Rs173 per MMBTU.

The highest consumption slab will not be allowed the benefit of the lower slabs. It was decided that if the gas consumption in any of the past 11 months and the billing month exceeded the level of two cubic meters, the rate of the highest slab would be applicable. This mechanism would apply from the consumption of July 2022.

The bulk consumers would be charged at the average prescribed price of Rs928 per MMBTU by the Oil and Gas Regulatory Authority (Ogra).

The prices have been increased after October 2020 and their continuation would have caused a combined revenue loss of Rs165 billion to the two power distribution companies during this fiscal year.

Ogra had determined the prices to recover Rs547 billion from the consumers to save the two gas distribution companies from bankruptcy. However, the government decided to increase the prices to recover a total Rs660 billion.

The Sui Northern Gas Pipelines Limited (SNGPL) would recover an additional Rs331 billion from the consumers as against Ogra’s recommendation of Rs261 billion. The Sui Southern Gas Company Limited (SSGCL) would get an additional Rs335 billion as against Ogra’s recommendation of Rs285 billion.

“The purpose of increasing the prices higher than Ogra’s determination is to stop the buildup of circular debt in the gas sector in this fiscal year,” Dr Musadiq said.

The Petroleum Division said that the gas sector’s circular debt which was Rs299 billion in June 2018, had increased to Rs1.232 trillion on March 31, 2022.

The domestic sector consumes 47% of indigenous gas and only 27% of the population gets piped gas.

The ECC approved to sell gas to tandoors at Rs928 per MMBTU and it abolished the existing slab structure. This will increase the tandoor’s gas price by Rs231 per MMBTU or 33%.

The commercial gas connection prices have been increased by 81% to Rs1,038 per MMBTU but the government said that the proposed rate is still 58% cheaper than the LPG prices.

The captive power and processing consumers of the general industry have been charged at Rs1,550 per MMBTU – up by 47%, and the exporters at Rs1,350 – an increase of 65%.

The gas prices for the cement and CNG sectors have been approved at Rs2,321 per MMBTU, showing an increase of 70% for the CNG sector and 82% for the cement sector.

The export industry in Punjab is proposed to be charged $8.5 per MMBTU. The non-export industry in Punjab will be charged close to the full RLNG price. The government has also readjusted the priority order to provide indigenous gas to exporters and the general industry in Punjab.

The ECC on Thursday again could not decide about giving nearly Rs54 billion annual subsidy to the Utility Stores Corporation to provide cheaper wheat flour, edible oil, and sugar.

The finance ministry said that the ECC approved the continuity of distribution of subsidised wheat flour under Prime Minister’s Sasta Atta Initiative on 1,200 additional sale points in Khyber-Pakhtunkhwa for two months – July 1 to August 31, 2022 – with further directions to submit in the next ECC meeting complete mechanism on the distribution of subsidy packages through the USC.

The ECC scrapped the tender for the import of 500,000 metric tonnes of wheat – two days after it had approved to give a tender at $439.4 per tonne. The decision has been taken due to a reduction in the wheat prices in the global market.

The ECC directed the Trading Corporation of Pakistan to float a fresh tender for the import of 300,000 metric tonnes of wheat. Further, a committee has been formed on the directions of the prime minister comprising of ministers of commerce, national food security and research, and finance to ascertain the actual wheat requirement for the country.

The ECC also granted approval for the issuance of the government sovereign guarantees of Rs10 billion for the construction of two units of 660MW super coal power projects, Jamshoro, that is 90% complete, in favour of local banks/financial institutions under Syndicated Term Finance Facility (STFF) agreed with a local bank.

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