The gas shortages are becoming higher with every passing winter. A revision in gas prices is becoming inevitable with increasing reliance on imported RLNG. The gas circular debt – the gap between the cost and pricing, is hovering around Rs700-800 billion and is likely to cross Rs1 trillion this winter. Hence, a revision in gas pricing to domestic, commercial, and industrial prices is the doctor’s prescription.
A bigger challenge is the domestic and industrial consumers of Sui South getting local gas as they believe they are entitled to cheap gas irrespective of the affordability argument. People living in million-dollar worth houses are paying gas bills of less than two dollars a month for nine months of the year in Karachi. Then, the industry in Karachi is paying much less than the players in Punjab competing with them. The issue is not about gas costing. It is that of a rent-seeking mindset and entitlement culture.
This winter, the gas is extremely short in the Sui Southern network. Local gas is not available for industrial sector barring a few that have a political clout. Anyone needing gas has to buy it at the imported RLNG price. According to a recent notice on the PSX, Engro Polymer and Chemicals Limited has entered into an interim agreement with SSGC for the supply of gas till 28th Feb 2023 based on industrial/commer-cial pricing of RLNG.
This is perhaps the first time that an industry located in the south receiving indigenous (cheap) gas has agreed to buy natural gas for 3 winter months at imported RLNG price. And that is likely to be the norm going forward for many. However, a better way is to allow the implementation of the WACOG (weighted average cost of gas) where both local and imported gas will be mixed and priced at the weighted average cost.
Without WACOG, the general industry has to pay higher prices. In this case, Engro Polymer is getting gas at $14.81/MMBtu (Rs3,315/ MMBtu) as compared to the notified price of Rs1,087/ MMBtu. The company is ready to pay over three times the price to make sure it gets gas to operate. This is setting the tone for the general industry, which is operating to catering to the domestic market.
For the industry, some may get gas using political clout or speed money. However, the majority won’t get anything, as the supply is short. There was some excess supply of RLNG, which was not being used by K-Electric. SSGC asked industrial consumers to buy around 30 mmcfd of excess gas. Engro Polymer is getting 10 mmcfd. Some other buyers may come as well for the remaining gas. But in this way, good consumers would be at a disadvantage. A better way for a level playing field is to have WACOG and let the reality sync in for the domestic industry.
And a more important matter is to revise the domestic gas prices. As 850 mmcfd gas (average supply which is higher in winters) is provided to the domestic sector where the average price recovery is $1.5 and the RLNG is costing $14.81. How does this add up?