ISLAMABAD, March 24: The World Bank has asked Pakistan to reduce the number of lifeline (residential) gas consumers enjoying subsidized fixed rates from 80 per cent to 20 per cent and withdraw Rs11 billion gas subsidy to fertilizer industry with effect from July 1, 2002.

This is part of the milestones the government needs to achieve to qualify for the release of $350 million structural adjustment credit (SAC-II), a senior official told Dawn.

The bank was told last month that the government intended to maintain the size of first slab intact in the short run so that any adjustment in the tariff to achieve cost recovery will necessitate an increase in the first slab rate which will also impact the poor and a considerable increase in the subsequent slabs.

The bank agreed to this but insisted that “the size of first slab of residential consumers be reviewed as part of the next adjustment in consumer prices, with a view to limiting it to the requirement of only low income consumers defined as the 20 per cent consumers that have the lowest total income. The next adjustment is scheduled for Sept 1, 2002.

At present, around 80 per cent consumers are using less than 100 cubic meters (unit) of gas per month and the gas sold under the first slab (0-100 unit) represent some 73 per cent of gas sales. “This is a very high level of consumption (equivalent to about seven cylinders of liquefied petroleum gas). The official said that this slab would now be reduced to 0-50 cubic meter or perhaps even below that level.

The bank believes that this subsidy for lifeline consumers is not confined to the lower income group. “If the target is to have this consumer class, as a group, cover its cost of supply, given the large share of gas consumed under the first slab, a reduction in that slab appears inevitable if the low income groups are to be supported,” said the bank.

On the question of gas subsidy on fertilizer, the government has already agreed that price of gas supplied to fertilizer industry will be brought in line with the prices charged from the rest of industrial sector in a phased manner, except for contractual obligations. Subsidies, if any, will be reflected in the national budget (2002-03).

Now the bank has reasserted: “(i) Effective July 1, 2002, the tariff applicable to all gas supplied to the fertilizer industry should be the industrial tariff; (ii) subsidies, if any, should be provided through the national budget”.

Pakistan, under the World Bank calculations, is providing Rs11 billion subsidy to the fertilizer industry through feedstock.

The bank is of the view that the government should provide this subsidy directly to the farmers if it wanted to protect the agricultural sector and not through the gas industry which was absorbed by the fertilizer industry.