ISLAMABAD: The government is unlikely to pass on the impact of the increase in gas prices to consumers because of political reasons, sources said on Saturday.

Consumer prices can potentially rise up to 10 per cent due to the recent revision in the wellhead price of natural gas produced in Sui.

Under a new arrangement between the Balochistan government and the Ministry of Petroleum and Natural Resources over the extension of the Sui gas mining lease, the wellhead price will be fixed at 55pc of 2012 Petroleum Policy.

Under the agreement, consumer gas prices will go up 9.7pc, which will help gas companies recover additional Rs25.4 billion.

The decision to increase the wellhead price received approval from the Economic Coordination Committee (ECC) as part of the agreement for the extension of the Sui gas mining lease for the next 10 years. It will allow state-owned exploration and production company Pakistan Petroleum (PPL) to stay on as the operator of the Sui gas field until 2026.

Under the revised agreement, PPL will also pay 10pc of the wellhead value as the lease extension bonus to the government of Balochistan besides corporate social responsibility-related activities. PPL will also invest Rs20bn in exploration activities in Balochistan during the lease period.

The Sui mining lease was originally set to expire on May 31, 2015. It was a legal requirement to have an arrangement in place for the continuation of gas production from the field. The federal government allowed PPL to continue gas production from the Sui mining lease for one year with effect from May 31, 2015.

While the price will increase for the gas companies, officials expect consumer prices will not go up accordingly.

“The exploration and production company will be selling costly gas to Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines (SNGPL). But our demand for an increase in the consumer rate has been turned down by the government,” said an official of SSGC.

Currently, the average purchase price for the gas companies is Rs510 per million British thermal units (mmBtu) whereas the average consumer price is Rs450 mmBtu.

Due to the sale of gas at a lower price, SNGPL’s claim of the price differential subsidy was around Rs60bn at the end of June.

However, an official of SNGPL said the company will file a petition with Oil and Gas Regulatory Authority (Ogra) for an increase in consumer prices from July 2017.

Published in Dawn, December 25th, 2016