October 04, 2006	Wednesday	Ramazan 10, 1427

KARACHI, Oct 3: Site Association of Industry Chairman Ameen Bandukda has said that the envisaged new formula to fix gas prices will hit both the consumers and the industry. He appealed to the president and the prime minister to intervene immediately to save the industry from further strains.

Under the existing system, the gas utilities are guaranteed 17-17.5 per cent “Return on average net fixed assets.” Now, under the new system, linked to KIBOR, the return to the gas utilities will be still higher than what they are presently assured, he said in a statement.

The Site chief pointed out that the secretary ministry of petroleum and natural resources gave a New Year gift to the gas consumers when he announced an increase in gas tariff on January 1, 2006 that was higher than the price raise demanded by the gas companies. The new formula is in line with the earlier action of the ministry, he added.

The industrialists objected to the basis of return on fixed assets. “Our contention is that it should be on the basis of equity.” All these years the gas utilities have been increasing their fixed assets and thereby receiving greater return despite the fact that some of the fixed assets, that were created, were a loss from the operational point of view, he said.

“If the tariff is to be kept within the manageable limits, the basis of return must be changed. Internationally, equity is the basis of computing the return and we should follow the same,” he added.

The government is forming committees and task forces to devise ways and means to bring down the cost of producing goods in Pakistan so that exports are not hampered but are enhanced. The new formula totally negates the efforts of cutting the cost of business, it will only add to the existing burden.

Mr. Ameen also questioned as to how the new tariff system would result in incentive to the gas utilities to control their losses and non-development expenses.

The new formula also assures a guaranteed profit, again as percentage on fixed assets. The percentage may vary because of its linkage to KIBOR but, ultimately, it will always be higher than the prevalent rate.

Furthermore, he also questioned the wisdom of a decision that is taken unilaterally on such an important issue without involving the stakeholders. The final decision on the issue should not be taken without involving the stakeholders, he suggested.

The Site chief drew the attention of the ministry and OGRA to the downward revision of the gas Wellhead prices of Quadirpur gas field, through the personal intervention of the prime minister. As such, the prevailing gas tariff should also be revised downward so that the effort and purpose of the premier is not lost.