• PM aide says circular debt has risen • No gas shortage in country • Arrangements being made to import LNG
ISLAMABAD: The government on Wednesday indicated that electricity and gas rates would be gradually increased over the next few years, conceding that circular debt in the power sector had increased by about Rs470 billion due to Prime Minister Imran Khan’s decision to freeze tariff in January as well as steep rupee depreciation.
Speaking at a hurriedly called news conference with Information Minister Shibli Faraz, Special Assistant to the Prime Minister on Petroleum Nadeem Babar said due to change in ground realities, the target of bringing down circular debt to zero by next month as agreed to with multilateral lending agencies could not be met.
Mr Babar said the government had reached an agreement with the International Monetary Fund and the World Bank for tariff increase which was suspended by the prime minister in January due to high inflation followed by Covid-19.
As a result, the freeze on monthly fuel price and quarterly adjustments had an impact of about Rs270bn, besides around Rs200bn brought about by currency devaluation to reflect real exchange rate artificially kept higher by the previous government, he said.
“In case of zero circular debt by December, the government had to pass on impact of both to the consumers, however, the prime minister disallowed it in January due to high inflation and then Covid-19,” he added.
Both Shibli Faraz and Nadeem Babar insisted that people had benefited from the freeze on tariff unlike a similar freeze imposed by the PML-N government for political reasons which left behind about Rs170bn worth of tariff increase determined by the regulator besides Rs192bn circular debt in gas sector.
Mr Faraz said it was always a difficult task for a political government to increase utility rates and “the present government is also stuck with the same dilemma”.
He said the present government had not been able to get out of the electricity quagmire left behind by the previous government in the shape of expensive contracts.
Mr Babar said another increase which was to be passed on to the consumers for full cost recovery pertained to inefficiencies of distribution companies.
“If you leave everything aside, the inefficiencies of distribution companies are adding Rs9 to Rs14bn a month to the circular debt, he added.
The special assistant said the circular debt inherited from the PML-N also included Rs146bn subsidy committed by then prime minister Nawaz Sharif as part of Rs3 per unit industrial support package which was neither budgeted nor released to the power sector.
Responding to a question about over 123pc (Rs250bn) increase in gas rates demanded by the Sui Northern Gas Pipelines Limited, Mr Babar said the federal government would not agree with the petitions filed by gas companies requesting recovery of revenue shortfall of previous years.
He said the last government did not allow increase in the gas tariff which resulted in increase in shortfall of companies by Rs192bn, adding that they would be allowed to recover the receivables in the next four to five years in phases.
He further said there would be no shortage of gas in the country as both terminals were running at full capacity. However, consumers could face low pressure problem in winter in the tail ends of the pipeline networks.
He said arrangements were being made to import around 1,300-1,325 million cubic feet per day of LNG to meet domestic needs. He said although the Sindh government had allowed work on construction of 17km gas pipeline to feed imported gas into the system, a formal approval from the provincial cabinet was still outstanding.
He said the pipeline would be completed by Dec 15.
The special assistant said it was unfortunate that a negative media campaign was being run against the government about LNG through selective statistics without taking into account the fact that cheaper product in peak summers could not be arranged for peak winters when prices go up.
He said the present government had imported 35 LNG vessels in the last 27 months at 20 per cent cheaper rates than the expensive LNG agreements signed by the previous government with Qatar.
“Our government imported LNG at an average 10.4 per cent of Brent on spot rate as compared to 13.37pc being imported under the Qatar agreement,” he added.
Nadeem Babar said the government had also allowed the private sector to construct LNG terminals and two companies were now in advance stages with one of them starting construction in January.
He said the PML-N government had established two LNG terminals with a guarantee to run these facilities, inflicting huge cost to the national exchequer which along with long-term LNG contracts tied the hands of the present government.
Responding to a question, he said the recent majority decision of Oil and Gas Regulatory Authority to set 6.3pc system losses for LNG price instead of 11pc had a legal lacuna because of previous government’s decision to describe LNG as petroleum product even though the government principally agreed to Ogra’s concept in the long run.
He, however, parried answer when reminded that the law did not allow any loss in pricing of oil products.
Published in Dawn, November 26th, 2020