So the postponement of gas price revision lasted no more than a week. Or so one hopes, provided the ECC recommendations do not get shot down by the cabinet today. Increasing utility prices was always going to be a daunting task, especially if the masses are affected the most. The ECC yesterday, recommended revising the gas sale prices upward from a minimum of 10 percent to a maximum 143 percent.
Seeing the backlash that the first summary of gas price revision got, the domestic sector prices have been revised rather cautiously where two-third of nearly 10 million domestic gas consumers face up to 10-15 percent increase. A new slab for minimum use consumers that constitutes 38 percent of the total domestic base has been added to minimize the impact on common men.
Cautious handling for the domestic consumers means the brunt has to be faced by other consumer categories. The highest increase has been recommended for the power sector, which happens to be the single largest sector by gas consumption with a one-third share in the pie. Share of natural gas in the power generation mix has come down to 25 percent two years ago to 15 percent today. A 57 percent increase in gas price for power generation, would definitely lead to higher fuel price component of power tariffs – which could go up by 9-10 percent.
The case for fertilizer companies is rather simpler and would not lead to a proportionate increase in urea prices. The estimated impact of the 50 percent upward revision in feedstock gas price has been worked at Rs128/bag, which is close to the amount that government has been giving as cash subsidies. This approach would bear better fruits without impacting the product price, as it would end the long delays that have occurred on account of payments to fertilizer manufactures.
The upward revision in CNG was long due and makes more sense, as the plan is to gradually free the natural gas allocation for transportation and replace it with RLNG instead. Needless to say, it will have inflationary consequences, but freeing up gas for more efficient usage will eventually yield better results in true economic sense.
Textiles and other zero-rated export oriented sectors have been incentivized by no change in gas price, and a new category is slated to be created. This aligns well with the PTI’s plan of bringing the energy costs to competitive levels for the export oriented sector. But a considerable increase for all other industries is sure to cause some upheaval.
There is no denying that the gas prices had to be rationalized. The fact that they stayed almost untouched for four years is well-documented and has created quite a mess for the two gas companies.
Yes, the government could have taken the most economically rationale route by sharing the burden more evenly – especially by the domestic sector. It decided to take a relatively safe route. But the backlash will still be there. There is also a small matter of the CCI coming into play, as Sindh has openly raised concerns over the jurisdiction of gas pricing. With the bitter pill hopefully swallowed, one would hope the focus moves on to improve the state of affairs at SSGC and SNGPL. Freeing up Rs90 billion on account of revenue shortfall, must lead to more discipline on account of UFG losses.
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