THE passage of the Oil and Gas Regulatory Authority (Second Amendment) Bill must allow the government to implement the weighted average cost of gas to remove the large price disparity between local and imported gas, an anomaly that is adversely impacting the financial sustainability of the two state-owned gas companies. It should also help the authorities increase the import of LNG to cover the growing supply gaps due to rapidly depleting local gas reserves, as well as improve the efficiencies of the power sector. Indeed, it will raise the cost of the fuel for industrial, commercial and residential consumers but will, at the same time, afford the government an opportunity to gradually phase out its huge subsidy expense bill on imported gas. A few weeks ago, the energy minister had stated that gas prices are estimated to rise by 30pc over the next several years. Currently, imported LNG forms about 24pc of the country’s total gas consumption, with its share likely to surge to 50pc in two years and up to 80pc to 90pc in another few as local supplies dry up and demand rises.

Increasing gas prices, especially for residential users, will be a tough decision for the government to make despite parliamentary approval of the law in view of the fast-approaching elections, but it is crucial for the financial sustainability of the gas sector and for making expensive LNG imports feasible. The supply of substantially subsidised imported LNG to wealthy textile factory owners and residential customers is contributing to the soaring inter-corporate debt in the gas sector, which is unofficially estimated to have spiked to Rs535bn at the end of FY21. A recent government estimate suggests that it will pay Rs40bn in subsidies in the first quarter of FY22 on LNG supply to textile and other exporters. Likewise, the consumption of LNG by residential consumers at a fraction of its import price is said to have contributed Rs100bn to the inter-corporate debt in the last three years. There is no doubt that the financial burden on both industrial and residential consumers of the imported gas will continue to go up with the increase in the share (and import price) of LNG in overall domestic gas supplies. But the trade-offs are always difficult to make. The alternative in this case has to be rationing of the fuel for different consumers at a much greater cost.

Published in Dawn, February 19th, 2022