Last update: Sun, 07 Feb 2016 06pm

20 percent increase in gas price likely

Gas prices may increase by 20 percent if the government supports Oil and Gas Regularity Authority's (Ogra) recommendations, a senior official of Petroleum Ministry revealed to Business Recorder. The government's refusal to implement Ogra recommendations dated July 3, 2014 for an increase in gas tariff for end consumers of Sui-Northern Gas Pipelines Limited (SNGPL) and Sui-Southern Gas Company Limited (SSGCL) have led to huge financial losses, informed sources further revealed.

The government needs to decide whether it would notify the Ogra recommendations or else be responsible for combined SNGPL and SSGPL losses of over Rs 50 billion, sources stated. The government, as per the Letter of Intent dated 2 December submitted to the International Monetary Fund (IMF) as a prerequisite for the Board approval to release the fourth and fifth tranche states: "We will notify and implement the next adjustment in the beginning of 2015, and will make further adjustments as needed when the imported gas comes online".

On July 3, 2014, the Authority proposed a tariff increase of 13.55 per cent for all types of gas consumers in its decision on petitions filed by the SNGPL and SSGC. Under Ogra ordinance, the government is bound to give advice on new prices in 40 days and if it fails, Ogra's decisions are implemented, but during this year neither the federal government gave advice to Ogra nor did the Authority implement its determination. The consequence: both gas utilities have to date suffered an estimated financial loss of Rs 25 billion and if the decision remains pending then the loss by the end of the year would be an additional Rs 25 billion.

According to a senior Ogra official, the Authority is not required to seek advice of the government to implement its pricing decisions however Ogra seeks the government consent due to the cross-subsidy mechanism in place. Ogra determines gas tariff for the two gas utilities twice a year - on July first and on January first. During the current finical year, it made a recommendation on July 3, 2014, while it has not yet to make any recommendations due to the lack of quorum as the Member Oil retired.

Copyright Business Recorder, 2015