WACOG – implementation is the key

The WACOG and OGRA amendment bills are passed, and the real challenge is in implementation. The gas circular debt can only be reduced by correcting the price anomalies. WACOG gives the federal government power to do so. However, increasing domestic consumer prices was always in the domain of federal government. The benefit it allows is that the government can play with prices in the other sectors.

One option is to work on a formula where the increase in prices for domestic, fertilizer, non-Punjab general and exporting industrial and commercial sector is less. For that to happen, CNG and power sector should be kept out of the mix. These are already being charged at full RLNG price and that should continue.

Pakistan power sector is expanding. Numerous new plants are coming. These are low in fuel cost and high on capacity charge. The power consumption should increase. That can happen by shifting gas consumers to power. The domestic consumers can transfer the winter load to electricity and the supply needs to be reliable by investing in the transmission and distribution.

The benefit from these bills is to lower the increase in gas circular debt by rationalizing prices. The supply increase will rely on imports, and here private supply model is in question.

The most important administrative reform is to increase the prices for domestic consumer. For a consumer on local gas if the bill is Rs200/month for the same consumer the bill is around Rs2,500 on LNG and over Rs6,000 on LPG. The affluent in Sindh – where there are no winters, are paying Rs200-300 per month while those living in slums are paying Rs6,000-7,000. That social unjust needs to be corrected.

The next sector is fertilizer where urea prices are around one fifth of the global, and at 2012 levels while the produce prices have jumped. There is a room for rationalizing urea prices. The industry itself has been asking for deregulation.

The happy go lucky customer would be the Punjab industry. The Sindh industrial consumer may cry as its cost of gas will increase. However, if the Punjab’s industry can survive at higher prices, why can’t Sindh’s?

The WACOG is going to address demand issues. There is nothing is on the supply as such. And the new terminal business model could come in jeopardy. One option is for government to mix the private LNG in the blend. But would not make private terminal truly private.

That is why government must come up with clear roadmap and plan for the WACOG. Every year the local gas supply will decrease and reliance on imported will grow. The government should give a plan for the next ten years with clear roadmap of pricing and all. The private sector needs to know when to invest and what to get in return. The bottom line is WACOG is good on paper; the real game is in implementation. And the first step is to rationalize domestic prices. But one may wonder that could have been done without WACOG and with WACOG how much political capital government has to do it now.