The natural gas prices in Pakistan are low and the commodity is available to only 27 percent of country's consumers. All this while, majority pays higher prices for consumption of LPG, RLNG or any other way of burning stove or engines. The dichotomy is not new; and it has been repeatedly said that gas prices have to revise upwards to justify the entire consumer base.
The cost of gas marketing companies is higher than tariffs which results in higher receivable for gas marketing companies. The gap has to be filled sooner or later – either the 27 percent gas consumers pay higher or all the tax payers take the brunt in the form of subsidies to SNGPL. The choice should be clear; but is a politically tough one.
The differential margin recoverable of SNGPL is growing at an uncomfortable pace. It has increased from Rs36.9 billion to Rs65.8 billion during FY17, and in 1QFY18 it inched up to Rs70.4 billion. According to SNGPL annual report…"This amount is receivable from Government of Pakistan on account of differential margin, the settlement of this amount is dependent upon increase in gas prices duly notified by OGRA, with the approval of Government of Pakistan".
The government has three options to deal with the amount which is growing at Rs5-7 billion a quarter. One is to do nothing and let the SNGPL bear the brunt. That cannot be lingered on as the whole energy chain would be adversely affected. The second option is to provide subsidy to SNGPL – in this way the 27 percent natural gas consumers would enjoy a free ride over the rest of the country. That is not fair and it should not happen as the rest of consumers are already paying higher prices.
The saner way is to enhance the natural gas prices to reduce or eliminate the gap between SNGPL's cost and tariffs. The industry experts are of the view that 15-20 percent increase in consumer tariff is due in near future to bridge the gap.
The natural gas is priced at around $4.5 per MMBTU while the new option of RLNG is costing consumers around $10 per MMBTU. The natural gas supply is around 4BCF per year while the RLNG consumption is approximately at 600MCF. The natural gas reserves are depleting fast while the demand is growing. In years to come, the weight of RLNG in the gas mix would increase and the average price ought to increase.
The best option is to mix the RLNG in the whole gas supply network and have the same price for every consumer. But that is far from reality in Pakistan. The domestic consumer is paying much less and using the gas inefficiently while the industry and marginalized consumers are paying the premium.
Mind you, the differential margin is apart from the UFG losses and other transmission losses which are already too high. In order to deal with UGF, unbundling of gas companies is the viable way to deal as the lower the consumer base a company is dealing the better it is.
The recent increase in Sui well head prices is also compelling for an increase in consumer price of SNGPL customers. Expect the consumer price to increase by around 20 percent in 2018; and that would have an impact on electricity prices as well. But will the incumbent government have the courage to do it right before the elections is another debate. The onus may well fall on the caretakers, whenever they come.