Gas tariff plan for Balochistan

The caretaker government is currently devising a strategy to introduce a special gas tariff for low-income individuals in Balochistan, aiming to mitigate the potential impact of an impending tariff hike, according to sources cited by The Express Tribune on Monday.

These sources revealed that discussions have taken place with the management of the Sui Southern Gas Company Limited (SSGCL), which operates in the Balochistan province. The proposal comes as the winter season approaches, a time when the province typically experiences harsh cold weather.

One source emphasized the importance of providing safety nets for low-income consumers, particularly in Balochistan, where residents become more vulnerable due to the cold waves during winter. They explained that while the government desires to implement a special tariff for low-income consumers in Balochistan, it would incur an annual cost of Rs10 billion. Considering the accumulated impact from previous years, this approach may no longer be sustainable. Nevertheless, the government is committed to shielding low-income consumers from the shock of rising gas prices.

Additional sources suggested an alternative plan: offering direct subsidies to low-income gas consumers to shield them from the effects of increasing gas prices. This subsidy could be administered through the Banazir Income Support Program (BISP).

Currently, the government relies on cross-subsidies to support low-income gas consumers. Sources noted that the government is intensifying its efforts to finalize a natural gas price increase, as the International Monetary Fund (IMF) has increased pressure to raise gas rates by 45-50%, effective from July 1, 2023, as determined by Ogra on June 2, 2023.

Ogra had announced a 50% increase (Rs415.11 per MMBTU) for Sui Northern Gas Pipeline Limited (SNGPL) consumers and a 45% increase (Rs417.23 per MMBTU) for SSGCL consumers on June 2. Consequently, SNGPL has accumulated a shortfall of Rs560.378 billion up to FY23, while SSGCL has a shortfall of Rs97.388 billion, resulting in a combined shortfall of Rs657.766 billion.

Delays in revising gas prices from July 1, 2023, have added Rs500 billion to the circular debt in the gas sector. This has led to a situation where people in remote areas are compelled to use costly gas cylinders while those in urban areas with piped gas connections pay lower prices.

The government is addressing various aspects of the gas sector, including optimizing production from depleting gas fields and reactivating closed wells using modern technologies. Efforts are also underway to boost oil and gas exploration and production activities across the country by addressing the crippling circular debt, which has hampered these activities.

Additionally, the government is planning to unbundle gas companies to enhance efficiency and reduce unaccounted-for gas (UFG). The goal is to establish a single gas transmission system and break down gas utilities into smaller entities to minimize losses and improve performance.

Managing the circular debt remains a significant challenge for the government. To address this issue, the government is considering making book adjustments between different companies. Currently, liquefied natural gas (LNG) is a major contributor to the circular debt, as previous governments directed expensive LNG toward domestic consumers during the winter season at a high cost.

Three state-run utilities—SNGPL, Pakistan State Oil (PSO), and Pakistan LNG Limited (PLL)—are entangled in the circular debt due to flawed policies of past administrations that diverted LNG to domestic consumers during the winter season. The SNGPL owes Rs476 billion to the PSO for LNG supply, and the absence of a legal framework to recover LNG bills from domestic gas consumers has exacerbated the circular debt issue.

The government is exploring plans to implement the weighted average cost of gas bill to reduce the circular debt and recover the full cost of LNG, although this faces challenges related to subsidy distribution among key gas-producing provinces.

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