ISLAMABAD: The proposed gas price adjustment for revival of profitability of the two gas companies has been estimated to eat up about Rs30 billion Gas Development Surcharge (GDS) of the provinces and increase consumer tariff by about 30 per cent.

Informed sources told Dawn that these estimates are based on a decision of the Economic Coordination Committee (ECC) of the Cabinet of November 20 that changed the pricing mechanism but was held in abeyance on the following day by the prime minister.

These sources, however, said a meeting presided over by finance ministry’s adviser Rana Asad Amin was informed by the petroleum ministry a couple of days ago that change in pricing mechanism would not put additional burden on the general public as the rates for lowest slabs of residential consumers would be either kept unchanged or increased nominally.

In private discussions, however, these officials said a detailed working by the Oil and Gas Regulatory Authority (Ogra) and the Ministry of Petroleum and Natural Resources suggested that the change in bulk-retail ratio would cut down unaccounted for gas (UFG) losses by about three per cent.

As a consequence, the average UFG of the two gas companies would come down from about 12pc at present to about 7pc. On the other hand, the Ogra benchmark of allowing 4.5pc UFG to gas companies in tariff would practically go up to 9.5pc or 10pc. One per cent UFG translates into Rs3bn.

The combined impact of gas price increase would result in erosion of gas development surcharge to provinces by Rs30bn and increase average tariff by 30 per cent with effect from July 1, 2014. However, since the new benchmarks would also be applicable for financial years of 2012-13, 2013-14 and 2014-15, the total impact would work out at about Rs65bn.The sources said the government has also been alerted by the Ogra that the government would have to consult the Council of Common Interest (CCI) before slashing the provincial shares in the GDS or else it would have to impose a new tax if it wanted to protect provincial GDS.

Also, the projected flow of 400 mmcfd (million cubic feet per day) due in March 2015 through imported liquefied natural gas (LNG) would also translate into substantially higher weighted average cost of gas because the LNG prices are estimated to be at least three times higher than current domestic price.

On November 20, the ECC approved policy guidelines for Ogra to protect viability of gas companies and to enable it complete revised working on gas pricing that could be implemented from January 1, 2015 depending on political situation at the time.These sources said the policy guidelines would enable gas companies to recover from honest consumers the cost of gas pilferage, losses due to law and order problem, and shifting the benefit of many income oriented items from consumers to gas companies to the extent of Rs18bn in the case of Sui Northern Gas Company Limited (SNGPL) alone involving about 5 per cent increase in tariff for consumers. A comparatively lower revenue would also go to the Sui Southern Gas Company Limited (SSGCL).

In addition, about Rs50bn would be recovered from consumers as part of normal revenue requirement – Rs33bn for SNGPL and Rs17bn for SSGCL. This involves a tariff increase of about 24pc excluding lower categories of domestic consumers.

The prime minister had told the ministries concerned that he could not allow tariff increase unless the ministries of finance and petroleum convinced him with detailed data and analysis why gas tariff increase was necessary and why system losses were in the region of 10-11pc and what were the international best practices and what was internal accountability in the gas companies to reduce these losses.

Published in Dawn, December 10th, 2014