THE proposed hike of 24pc-37pc in the gas price of the top 23pc residential consumers, who account for 43pc of the total volumes sold by the two public gas utilities, will adversely affect most such households. That is not all. It will also affect the household budget and erode the purchasing power of smaller, low-income gas consumers — who the government claims it is trying to shield by cross-subsidising their fuel costs — through inflation. After all, even a small hike in energy prices tends to create pressure on the cost of everything else and triggers more inflation. The inflationary burden on people is already very high. A further increase will crush millions of households that have been struggling to make ends meet in the last three years because of repeated increases in energy prices, harsh economic stabilisation policies, currency devaluation and the pandemic.
Ostensibly, the proposal is part of a plan to introduce ‘seasonal energy pricing’ for residential and commercial consumers to boost electricity sales and discourage gas consumption for heating purposes during winter when power demand plunges and gas usage spikes to unmanageable levels, raising the government’s energy supply costs and creating countrywide gas shortages. But the plan’s success hinges mainly on a concomitant and proportional reduction in power tariffs in the colder months. Can the government achieve this given the IMF pressure to raise power prices for full-cost recovery and reduction in the power-sector debt? It looks unlikely. If the choice for consumers is not profitable enough and if the cost of the required shift is not affordable, they will continue to resist the required switchover. If they do switch, the energy ministry expects the electricity usage during off-peak months to rise by up to 300MW and gas demand to drop by 50mmcfd. Does that make the trade-off attractive enough? Another view is that the two gas companies, SNGPL and SSGC, are asking for this hefty price raise mainly to help meet their own expenditure and cover the costs of their inefficiency and gas theft, which has been the primary reason for previous tariff hikes. The utility companies need pricing and governance reforms. Periodic tariff hikes without tackling the deep-rooted rot will not work. The government needs to carefully weigh the proposal as well as the trade-offs involved before making its final decision since it is going to have quite a deep impact on the vast majority of people and not just affluent gas consumers.
Published in Dawn, September 21st, 2021