Govt plans massive hike in gas prices ostensibly to bridge the revenue shortfall of Sui companies

ISLAMABAD: The government is all set to jack up the gas prices with effect from 1st October 2023 and in this, the Petroleum Division has prepared a summary which would be presented to the federal cabinet’s economic coordination (ECC) for necessary approval.

According to sources, the government is expected to revise the gas prices for various categories of gas consumers ostensibly to bridge the revenue gap and address the longstanding issue of pending tariff revisions. They said that the Petroleum Division’s proposal, titled ‘Natural Gas Sale Pricing for FY 2023-24 (Effective-1st October, 2023)’, has outlined revised gas prices for various consumer categories. They said under the proposed changes, non-protected domestic consumers are expected to experience a substantial hike, ranging from Rs 300 to Rs 4,400 per Million British Thermal Units (MMBTU), depending on their usage. Additionally, fixed monthly charges for both protected and non-protected domestic consumers will see substantial increases, marking a significant change in the cost dynamics for households across the country. And, the Economic Coordination Committee (ECC) of the Cabinet is likely to take a final decision very soon in this regard, said sources.

Sharing details of the proposed revision in the gas prices for various categories of gas consumers, the sources said that under the proposed gas prices for different categories of gas consumers, gas tariff for protected domestic (residential) consumers will remain the same while the gas price for non-protected domestic consumers who use up to 0.25hm3 (cubic hectometer) is proposed to be revised from Rs 200 per Million British Thermal Unit (MMBTU) to Rs 300/mmbtu. Similarly, the gas price for non-protected domestic consumers who use up to 0.6 hm3 is proposed to be increased from Rs 300/mmbtu to Rs 600/mmbtu, while gas price for non-protected domestic consumers who use up to 1hm3 is proposed to be revised from Rs 400/mmbtu to Rs 1,000/mmbtu and the gas price for non-protected domestic consumers who use up to  1.5hm3 is proposed to be revised from Rs 600/mmbtu to Rs 1,200/mmbtu. Likewise, gas price for non-protected domestic consumers who use up to 2hm3 is proposed to be revised from Rs 800/mmbtu to Rs 1,600/mmbtu and the gas price for non-protected domestic consumers who use up to 3 hm3 is proposed to be increased from Rs 1,100/mmbtu to Rs 3,000/mmbtu while the gas price for non-protected domestic consumers who use up to 4 hm3 is proposed to be revised from Rs 2,000/mmbtu to Rs 3,500/mmbtu. Furthermore, the gas price for non-protected domestic consumers who use above 4hm3 is proposed to be increased from Rs 3,100/mmbtu to Rs 4,000/mmbtu with effect from 1st October, 2023.

It is also learnt from sources that fixed monthly charges for protected category of domestic (Residential) consumers will go up from Rs 10 to Rs 400 while fixed monthly charges for non-protected domestic consumers who use up to 1.5 hm3 is proposed to be increased from Rs 460 to Rs 1,000 and the fixed monthly charges for non-protected domestic consumers category who use 2 hm3 of gas to above 4hm3 is proposed to be increased from Rs 460 to Rs 2,000  while with effect from 1st October, 2023.

As per proposed revised gas tariff for other categories of gas consumers, the gas price for bulk consumers is proposed to be raised from Rs 1,600/mmbtu to Rs 2,000/mmbtu, while the gas price for special commercial (Roti Tandoor) will remain the same at Rs 697/mmbtu and gas price for commercial consumers is proposed to go up from Rs 1,650/mmbtu to Rs 3,900/mmbtu. Similarly, gas tariff for Liberty Power is proposed to increase from existing Rs 2,406/mmbtu to Rs 3,890/mmbtu while the gas price for Liberty Power is based on HSFO linked formula and not fixed by the government. Likewise, gas price for fertilizer plant of FFBQL (feed) is proposed to be increase from existing Rs 510/mmbtu to Rs 580/mmbtu while no change in gas price for Engro (feed) is proposed as Engro Fertilizer Ltd (new plant) has a claim of extended period for feed gas concessionary tariff of US$ 0.7/mmbtu due to non-supply of gas by SNGPL and Sindh High Court has granted stay order to maintain the status quo. However, gas price for fertilizer (fuel) is proposed to be increase from existing Rs 1,500/mmbtu to Rs 1,580/mmbtu. Furthermore, gas price for cement category of gas consumers is proposed to be revised from existing Rs 1,500/mmbtu to Rs 4,400/mmbtu.

Sources also informed that the gas price for export industry (process & captive) is proposed to be revised from existing Rs 1100/mmbtu to Rs 2,050/mmbtu and the gas price for non-export industry (process & captive) is proposed to be increased from existing Rs 1,200/mmbtu to Rs 2,600/mmbtu. Also, the gas price for the category of CNG is proposed to be revised rom Rs 1,805/mmbtu to Rs 4,400/mmbtu.

Sui Southern Gas Company Limited (SSGCL) and Sui Northern Gas Pipelines Ltd (SNGPL) are public sector gas utility companies licensed from Oil and Gas Regulatory Authority (OGRA) for purchase, transmission, distribution and sale of gas to consumers in the country.  OGRA determines annual revenue requirements of both sui companies in accordance with the respective license conditions, Natural Gas Tariff Rules 2002 and Section 8 of the OGRA Ordinance 2002.

OGRA issued its determination of Estimated Revenue Requirements (ERR) for FY 2023-24 on 02-06-2023 for both SNGPL and SSGCL.

According to the said determination, SNGPL required a revenue of Rs 358 billion and SSGC required a revenue of Rs 339 billion in FY 2023-24.

Pursuant to Section 8(3) of the OGRA Ordinance 2002, federal government was required to advise OGRA to revise the consumer gas prices in accordance with government policy with effect from 1st July 2022 within 40 days of determination of OGRA. However, the revision in consumer gas prices could not be done as of date. Due t price inaction, the sui companies have already carried the revenue shortfall for the period July to September 2023.

Section 8(3) of OGRA Ordinance requires the federal government to ensure that the sale prices so advised are not less than the revenue requirement(s) determined by the Authority. However, the consumer gas prices have not been adequately revised consistent with OGRA’s determination since FY 2013-14. This has resulted in accumulation of revenue shortfall/tariff differential amounting to Rs 878 billion (SSGCL: Rs 450 billion, SNGPL: Rs 332 billion) as of June 2023. This is part of petroleum sector’s total circular debt stock (excluding late payment surcharge) of approximately Rs 2,100 billion. Price inaction until June 2024 will result in revenue shortfall of Rs 185 billion on natural gas only. Companies have already carried a revenue shortfall of Rs 46 billion for the period July to September, 2023. On the other hand, the deficit on RLNG diversion of Rs 210 billion is anticipated during this winter, bringing the total shortfall to Rs 395 billion.