ISLAMABAD, July 23: The World Bank has asked the government to introduce a new system of fixed charges in natural gas tariff in addition to those for the volume consumed in a month, to make it in line with market based principles.

The bank, which is assisting the government in privatisation of gas companies and restructuring of gas market and tariff system, said: “The firm service tariff should be structured with fixed charges (demand capacity charge, commercial or operational charge not related to volume consumed) and a commodity charge, both reflecting the nature of costs: fixed and variable.”

Currently, the gas companies charge consumers only the cost of consumed volume, which can be Rs150 per month for a household in case of minimum consumption. The involvement of capacity payment will increase the tariff.

A similar proposal from the Water and Power development Authority was rejected by the National Electric Power Regulatory Authority a couple of years ago on protest from consumers.

The bank says that domestic and fertiliser sectors, which pay the lowest rates, have guaranteed gas supplies even in case of shortage while power, industry and commercial consumers, who pay higher rates, are on the priority list for disconnection in case of shortages in winter.

It argues that the one who pays higher rate should have the priority of supplies.

It believes that retail tariff should reflect location costs or distance from the gas fields.

The World Bank suggests that gas tariffs in Pakistan are based on political and social considerations rather than economic principles. It says low gas rates for the residential consumers of first two slabs and fertiliser plants result in presence of cross subsidies in the present ‘distorted rate structure,’ which means higher tariff for other consumers.