ISLAMABAD, Feb 19: The government is expected to increase natural gas prices by a minimum 10 per cent for domestic consumers with effect from March 1, 2002.
The federal cabinet, which meets here on Wednesday, would take up for consideration a comprehensive package for withdrawal of subsidy on gas consumers and dismantling the well-head price formula of Pakistan Petroleum Limited (PPL).
Before the cabinet meeting, a team of petroleum ministry led by federal minister Usman Aminuddin would give a presentation to President General Pervez Musharraf in the morning.
Two major reasons for gas tariff increase include: (i) the proposed dismantling of Gas Wellhead Price Agreement (GPA) of Pakistan Petroleum Limited (PPL) and (ii) rationalisation of consumer tariff through elimination of subsidies.
Secretary Petroleum M. Abdullah Yousaf, when contacted, told Dawn that revision in natural gas prices on six-monthly basis in accordance with the internal oil prices already stand settled as the ministry took the issue to the cabinet twice in the past.
He said that first increase authorised under that decision was due in September but was postponed till March. “So we will do it now,” said the secretary. He, however, refused to quantify the increase saying “we are taking so many options to the cabinet and it is difficult to say what suits them”.
He, however, confirmed that the question of dismantling the PPL’s well-head price agreement was coming up for consideration in the cabinet meeting on Wednesday. The government has already missed a revised target with the International Finance Corporation (IFC) to privatise PPL. IFC holds around 7 per cent shares in PPL.
If the dismantling of PPL’s gas purchase agreement (GPA) is approved by the cabinet, from now onwards, gas prices would be reviewed on Ist of March and Ist of September every year to pass on the impact of producer price already linked with international fuel oil price to the consumers.
A total of around 300 per cent increase in consumer gas prices is required in next four years as a result of dismantling of PPL’s GPA. Roughly 18 per cent average increase in gas price will take place every six months for at least next four years.
Last time, the gas tariff was increased by 14.4 to 39.4 per cent for industrial, commercial and domestic consumers on March 17, 2001. Since then tariff for cement industry has increased by around 30 per cent.
The tariff raise for commercial, industrial and power sector is projected to remain in the vicinity of 100 to 150 per cent because they are currently subsidising the domestic sector.
The official gas tariff rationalization and dismantling plan of PPL however envisages spreading this increase in 3 to 5 years to avoid a sudden jolt to the national economy. In this way, the market-based gas pricing mechanism will be fully in place by the year 2004 or 2005.
The tariff for first domestic slab (100 units), second and third slab (100 to 200 hundred cubic meters and 200 to 300 cubic meters), and fourth slab (300 to 400) will increase at the rate of 16 per cent, 19.4 per cent and 20.9 per cent respectively every six months till 2004. The gas rate for fifth slab (all over 400 hundred cubic meters) will increase by 35.8 per cent on every first day of March and September till 2004.
Under this mechanism, the existing Rs85 per MCFT rate for first slab including the impact of general sales tax will touch Rs177 figure (110 per cent) in 2004. The rate for second slab will go from Rs90 to Rs220 (144 per cent), third slab from Rs120 to Rs296 (145 per cent), fourth slab from Rs183 to Rs473 (145 per cent), and fifth slab from Rs250 to Rs1153 (365 per cent) by the year 2004. The monthly bill of fifth slab consumers will go up from current Rs2000 to Rs 9360 in 2004.
Similarly, gas rate for commercial consumers will increase by an average 14 per cent every six months. Tariff for industrial and power sector consumers will go up by an average 12 per cent every six months till 2004. Fertiliser feedstock tariff will remain capped but fertiliser fuel tariff will keep on increasing accordingly.
The aforementioned tariff will mainly come as a result of dismantling of the Gas Wellhead Price Agreement 1982 (GPA) of Pakistan Petroleum Limited (PPL) and elimination of around Rs6 billion gas subsidies now available to domestic sector. Over and above this will be the impact of devaluation of Pak-rupee and inflation.
The current gas consumer price consists of cost of gas (weighted-average of wellhead gas prices), transmission and distribution costs, gas utilities’ return on assets and taxes like gas development surcharge (GDS) and General Sales Tax (GST). Wellhead prices are linked with the international price of crude oil or fuel oil and are notified on half-yearly basis on first of January and July as per existing gas price agreements (GPAs) with producers.
The subsidy being enjoyed by the domestic sector will now be removed gradually to link gas prices with the cost of supply. As a result, additional burden of subsidy for domestic consumers on industrial and commercial consumers will be discontinued and all consumers will have a level playing field.
