KARACHI: The Senate on Thursday passed the Oil and Gas Regulatory Authority (Second Amendment) Bill, which will help the government implement the weighted average cost of gas (WACOG).

This 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.

“We are now able to embark upon the reform of the gas pricing structure, remove anomalies and enhance supplies of imported gas,” said Energy Minister Hammad Azhar on Twitter.

The legislation gives the gas sector’s regulator the right to revise the price of local and imported gas without giving notice to the public and without holding a public hearing.

Speaking to Dawn, Pakistan-Kuwait Investment Company Head of Research Samiullah Tariq said the likely increase in the price for the domestic sector is going to be moderate.

“Industrial users are desperate buyers of gas. I believe the government is going to cross-subsidise domestic users to minimise the impact of WACOG,” he said.

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 2020-21.

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. The circular debt originating from the domestic sector alone went up by Rs100bn over the last three years, according to Tabish Gauhar, former aide to the premier on power and petroleum.

Published in Dawn, February 18th, 2022