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Gas price hike

March 14, 2018

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BY itself a hike in the price of natural gas is not something anybody should oppose, considering the heavy subsidies that the sector benefits from, as well as the wastage of the precious resource that its low price encourages. Eventually, gas pricing will have to be reformed drastically given the massive injections of imported gas that the country is increasingly relying on as sources of domestic gas decline. The imported gas is two to three times more expensive than its domestic counterpart because it is purchased from the open market, and the price differential between both categories — imported and domestically produced — will increasingly complicate the shift towards LNG that is envisioned to reach its peak in a few years. But when we hear that the government has decided, in principal, to increase the price of gas to pay for system losses, and make the increase retroactive, it smacks of failure and is yet another example of passing the cost of the government’s inability to do its job on to the consumers. The petroleum division has warned, in a recent summary sent to the cabinet, that Rs18bn are required urgently to plug the finances of both gas distribution companies due to leakages, known in the industry as unaccounted for gas, or UFG.

This is gas-sector reforms turned inside out. Only a few days ago, we heard that crucial reforms to restructure the gas sector and bring in the play of market forces to drive efficiencies, and possibly even pricing reform, has been postponed. Since the state-controlled management of both gas distribution companies has been unable to plug their UFG losses over the years, huge losses are piling up on their books. So now, where the government is too squeamish to undertake the reforms and restructuring of the utilities, it is preparing to ask the consumers to foot the bill. This story is repeating itself in other areas too, be it the power distribution or the national airline or the steel mill. The advantage in the energy sector — gas and power — is that a vast pool of consumers exists to readily pass the costs of governmental failure on to, whereas in other public-sector enterprises, these costs pile up on the balance sheet. This government has behaved like a technocratic enterprise ever since the fateful Panama verdict, but, increasingly, it is becoming clear that its expertise and capacity are only skin deep.

Published in Dawn, March 14th, 2018