KARACHI: Minister for Energy Hammad Azhar said on Tuesday the government will table a piece of legislation in parliament “shortly” to implement the weighted average cost of gas (WACOG).
“The government is currently unable to substitute depleting local gas with imported gas without incurring heavy financial losses,” he tweeted.
WACOG is the pricing mechanism that takes into account the blended costs of both indigenous and imported gas as opposed to the current pricing method, which ring-fences the use of imported fuel.
Under the 18th amendment to the constitution, a gas-producing province has the first right to its use. Therefore, gas-producing smaller provinces have been opposing WACOG which, they believe, will benefit Punjab at their expense.
Speaking to Dawn, Topline Securities Chief Economist Syed Atif Zafar said the move is unlikely to succeed in view of serious political resistance, especially from the PPP that’s in power in Sindh.
The gap between the price of imported LNG and the subsidised rate that a disproportionately large segment of consumers pays for it has contributed to the rising inter-corporate debt in the gas sector, which amounted to roughly Rs535 billion at the end of June.
The stock and the flow of the circular debt have been rising for the last three years as the country diverts imported LNG supplies every winter to the domestic sector, which pays a fraction of the real cost of fuel.
Some of the domestic-sector consumers pay as low as Rs120 a unit compared with the imported price of Rs2,000, according to Tabish Gauhar who stepped down as special assistant to the prime minister on power and petroleum in September. The circular debt originating from the domestic sector alone went up by Rs100bn over the last three years.
Mr Zafar of Topline Securities said the imported gas currently costs around $25-30 per million British thermal units (mmBtu). In contrast, the price of indigenous gas is $5-6 per mmBtu, he said. “WACOG should be around $10-11 per unit for all consumers based on the going rates,” he added.
Published in Dawn, December 1st, 2021