Government to introduce specialized Gas tarrifs to support low-income households
In Islamabad, the interim government is actively developing a strategy to introduce a specialized gas tariff aimed at supporting the low-income population in Balochistan. This initiative aims to mitigate the potential impact of an impending tariff increase. Sources disclosed this information to The Express Tribune on Monday.
According to these sources, discussions on this matter have also taken place with the management of the Sui Southern Gas Company Limited (SSGCL), which operates in the Balochistan province. The proposal comes in anticipation of the approaching winter season, which is just a few months away.
One source emphasized the importance of safeguarding low-income consumers, particularly in Balochistan, as they become more vulnerable due to the cold weather that grips the province during winter. The source mentioned the desire for a specialized tariff for low-income consumers in Balochistan, but highlighted that it would cost approximately Rs10 billion annually. Considering the accumulated impact from previous years, sustaining such a tariff might become challenging.
The government's aim is to shield low-income consumers from the potential shock of gas price increases. Additional sources revealed a proposal to provide direct subsidies to low-income gas consumers to shield them from the effects of rising gas prices.
It is suggested that the government might offer subsidies through the Banazir Income Support Programme (BISP) to the low-income segment of gas consumers. Currently, the government utilizes cross-subsidization to support low-income gas consumers.
The sources stressed that the government is intensifying efforts to finalize the scenario for a natural gas price increase, as the International Monetary Fund (IMF) is increasing pressure to raise gas rates. Senior officials from the petroleum and finance departments, along with the Oil and Gas Regulatory Authority (Ogra), convened on Monday to finalize the proposed gas price hike, estimated to be between 45% and 50%.
An official from the energy ministry confirmed that the IMF has intensified pressure on the government to implement the gas price hike starting from July 1, 2023, as determined by Ogra on June 2, 2023. In June, Ogra announced a 50% increase in gas prices for Sui Northern Gas Pipeline Limited (SNGPL) consumers, raising the subscribed gas price to Rs1238.68 per MMBTU.
For SSGCL consumers, the regulator increased the gas price by 45% to Rs417.23 per MMBTU. Sources added that the SNGPL still carries an accumulated shortfall of Rs560.378 billion up to FY23, while the SSGCL has a shortfall of Rs97.388 billion. This results in a total existing shortfall of both gas companies amounting to Rs657.766 billion.
Delayed revisions in gas prices from July 1, 2023, have contributed to the addition of Rs500 billion to the circular debt in the gas sector. The official emphasized that people in remote areas are compelled to use expensive gas cylinders, while urban areas with piped gas connections enjoy lower prices.
The government is working on various strategies to optimize gas production from depleting fields, reopen closed wells using advanced technologies, and increase oil and gas exploration and production activities across the country. Additionally, there are plans to unbundle gas companies to enhance efficiency and reduce unaccounted-for gas (UFG).
The government envisions consolidating gas transmission and dividing gas utilities into smaller entities to minimize losses and improve performance. Managing the circular debt remains a significant challenge for the government, and efforts are being made to reduce it through book adjustments between different companies.
Currently, liquefied natural gas (LNG) contributes significantly to the circular debt, as previous governments directed expensive LNG towards domestic consumers during the winter season, albeit at a high cost. Three state-run utilities, including SNGPL, Pakistan State Oil (PSO), and Pakistan LNG Limited (PLL), are entangled in the circular debt due to flawed policies that diverted LNG towards domestic consumers during the winter season.
SNGPL has pending payments of Rs476 billion to PSO for LNG supply, and the absence of a legal framework to recover LNG bills from domestic gas consumers has contributed to the circular debt. Efforts are underway to implement the weighted average cost of gas bill, which could help reduce the circular debt and recover the full cost of LNG. This initiative is aimed at addressing these challenges in the gas sector.