ISLAMABAD, March 1: The government announced on Friday that natural gas tariff will go up by an estimated 70 to 130 per cent over a period of three years following the decision to withdraw the annual subsidy of around Rs46 billion.
This was stated by secretary petroleum M. Abdullah Yousaf here on Friday at a news conference. He announced a number of other policy measures, including immediate increase in gas prices of 8 to 20 per cent for domestic consumers and dismantling of 1982 gas purchase agreement (GPA) of the Pakistan Petroleum Limited (PPL).
He said the entire subsidy would be withdrawn in three years, starting with the current tariff increase. The GPA of the PPL, he added, was being dismantled and would be signed afresh. The price increase would have gone much higher had the government fully increased it to the level of other gas fields but it was decided that 50 per cent of the increase be passed on to consumers and 50 per cent be borne by the government.
This will yield around Rs20 billion additional revenue to the government every year and the remaining portion will go to the new buyer of the PPL.
“PPL is providing subsidy to every consumer of the economy. This is around Rs40 billion. This is unbearable. So we want to change that in five years,” said secretary petroleum.
He said Balochistan had also been protesting over gas development surcharge and royalty payments to it and added that revised GPA with PPL at higher rates would increase provincial share significantly because royalty is calculated on 12.5 per cent of the total well-head price.
He said domestic sector was currently enjoying subsidy of around 23 per cent which has been scaled down to 19 per cent through rationalisation of tariff from March 1.
Under the revised tariff, the prices of first 100 units would remain unchanged at Rs66.86 per million British Thermal Unit (MMBTU). The tariff for 101-200 units (cubic metres) has been increased by 7.9 per cent, from Rs93.39 to Rs100.93 per MMBTU. The rate for 201-300 units has been raised from Rs138.93 to Rs161.16 per MMBTU, up by 16 per cent.
A 20 per cent raise has been made to consumers using above 301 units. The price for 301-400 units has been increased from Rs168.1 to Rs201.45 per MMBTU and for those using 401 units and above from Rs181.54 to Rs217.85 per MMBTU, he said.
He agreed that around 60 per cent increase in gas prices has already taken place since 1999, but said one should bear in mind that these prices remained frozen for three years before the military government took over.
He said lopsided gas tariff structure needed to be rationalised through market-based mechanism to attract investment for the development of gas structure as Pakistan was a gas-rich country.
Yousaf said cost of service would be the basis of tariff structure and domestic sector around the world had to pay more because power and industrial inputs required to be made globally competitive through withdrawal of cross-subsidies these sectors were providing to the domestic sector.
He said dismantling of PPL’s GPA was necessary to be brought at par with other gas fields but the government decided to retain 50 per cent of this increase to itself as passing on the full impact would have been unsustainable for the economy.
From now on, the gas prices would be based on well-head price plus transmission and distribution cost plus return to utilities besides the 15 per cent taxation. The prices would be revised every six months and cost of service will be the basis for tariff which means that bulk consumers would be provided gas at cheaper rates than small or retail consumers.
The secretary said unaccounted for gas (UFG), commonly known as transmission and distribution losses had been brought down from 13 per cent to 7.7 per cent in three years and would be further reduced to 6 per cent in next three years.
He said now the government had decided to give maximum priority of gas supply to power sector so that around $600-700 million per annum could be saved through use of gas instead of fuel oil for power generation.
To a question, the secretary said a task force had been set up to monitor progress on Pakistan-Iran pipeline to India, between Pakistan and Iran and between Iran and India, separately.
To another question, he said Iranian oil minister during his recent visit to Pakistan had assured that there was a lot of interest in the project. India was also not averse to the pipeline and many companies were ready to form a consortium and once these issues were settled the political issues could be tackled, he added.