"Rising Gas Prices Alert: How to Shield Yourself from a 50% Tariff Bombshell!"

 June 03, 2023 | Syed Junaid ali shah 

ISLAMABAD: Customers in Pakistan should prepare for a possible 50% hike in natural gas prices starting in July 2023. 

Increase in gas price is common in Pakistan in the last two years Two faltering state-run gas utilities were the subject of final findings by the Oil and Gas Regulatory Authority (Ogra), which were then submitted to the government for publication of a notification."Rising Gas Prices Alert: Protecting Yourself from a 50% Tariff Bombshell!". An estimated revenue need (ERR) of Rs697.4 billion to be collected from petrol customers has been determined by Ogra for the upcoming fiscal year 2023–2024. A total of Rs358.4 billion would be collected by the Sui Northern Gas Pipeline Limited (SNGPL), which is in charge of supplying gas to customers in Punjab and Khyber-Pakhtunkhwa (KP).

The Oil and Gas Regulatory Authority (Ogra) issued final conclusions against two state-run gas utilities that were in trouble, which were later stricken off the list. The Sui Southern Gas Company (SSGC), which provides gas to customers in Sindh and Balochistan, will rake in Rs339 billion in the meantime.

The average prescribed price established by Ogra for SNGPL is Rs1238.68/MMBTU, which is a 50% increase, or Rs415.11, over the price at the time. In a same vein, the average prescribed price for SSGC is set at Rs1350.68/MMBTU, an increase of Rs417.23 or 45%. Ogra explained that the average prescribed price is primarily made up of the cost of petrol, which makes up more than 85% of the calculated price. 

The SNGP initially asked for Rs. 1044.12 billion in income requirements, which included a Rs. 560.38 billion revenue shortfall from the prior year. Based on this, the SNGPL requested a 286% increase in the prescribed price of Rs2,206.19/MMBTU, aiming to raise it at Rs2,977.5/MMBTU.

The SSGC also asked for a 42% hike, asking for Rs388.01/MMBTU to recover Rs331.68 billion, culminating in a suggested prescribed price of Rs1321.47/MMBTU. The regulator wants to set the price at 1238.68/MMBtu and do away with the distinction between protected and unprotected slabs for gas consumers.

For protected low-slab users, this shift will result in a huge increase in petrol costs of up to 923 percent. Two slabs that use a lot of gas would, however, profit from the revised price because they were previously paying up to Rs3100/MMBtu.

The regulator has also suggested significantly raising the cost of petrol for roti tandoors. Interestingly, petrol prices will decrease for CNG stations, cement, fertiliser, power plants and independent power producers (IPPs), while they would increase for zero-rated consumers. The cost of feedstock petrol for the fertiliser industry will, however, more than quadruple.

The current prescribed gas prices are Rs. 1500/MMBtu, Rs. 1805/MMBtu, Rs. 1650/MMBtu, Rs. 510/MMBtu, Rs. 1050/MMBtu, Rs. 1200/MMBtu, and Rs. 1050/MMBtu, for cement, CNG, ice factories, commercial users, fertiliser feedstock gas, power stations, captive power, and IPPs, respectively. For all of these groups, the regulator now proposes a standard mandated price of Rs. 1238.68/MMBtu.

SSGCL

The regulator has suggested doing away with the protected and non-protected slab differentiation for SSGC clients and putting the required tariffs at Rs1350.68/MMBtu. The price for the first slab of home consumers on the SSGC system has increased from the previous prices of Rs200/MMBtu to Rs1350.68/MMBtu. The current pricing for the second slab is Rs. 300, the third slab is Rs. 400, the fourth slab is Rs. 600, the fifth slab is Rs. 800, the sixth slab is Rs. 1100, the seventh slab is Rs. 2000, and the eighth slab is Rs. 3100. The price per MMBtu has been calculated at Rs. 1350.68.

This implies a considerable increase in petrol prices for lower slabs yet a significant decrease in prices for higher slabs. The lowest three to four slabs contain more than 80% of petrol customers, it should be mentioned. The suggested rate for the five slabs, whose current rates range from Rs110 to Rs700/MMBtu, is Rs1350.68/MMBtu for the category of gas clients who use roti tandoors.

Commercial gas clients, including ice producers, now pay Rs1350.68/MMBtu for gas instead of Rs1650/MMBtu previously. From the current Rs1200 to Rs1350.68/MMBtu, the general industry cost has increased. The tariff for general industry that is export-oriented has increased from the previous Rs1100 to Rs1350.68/MMBtu. The cost of captive power generation has increased from Rs. 1200 to Rs. 1350.68.

The prescribed price of Rs1350.68/MMBtu has been determined for all these categories, including cement (previously priced at Rs1500/MMBtu), CNG (previously priced at Rs1805/MMBtu), Fuji Fertiliser Bin Qasim feedstock for fertiliser (previously priced at Rs510/MMBtu), power generation (previously priced at Rs1050/MMBtu), Pakistan Steel (previously priced at Rs1200/MMBtu), and IPPs (previously priced at Rs1050/MMBtu).