Gas price hike to hit textile, cement makers hard

[Naveed Yaseen]

By Saad Hasan
KARACHI: As expected the government did not take the difficult step of ending cross subsidy enjoyed by fertiliser makers, when caretaker petroleum minister Shah Mehmood Qureshi on Monday announced a 31 per cent increase in gas prices.

The announcement dashed all hopes of textile and cement makers who expected some relief in times when cost of doing business has soared unabated and general inflation is high. On the contrary, it has been announced that industrial consumers will have to pay 68 per cent more for gas used by them for captive power generation.

“This is outrageous,” said Nisar Shaikani, Chairman Site Association of Industry. “This much increase will make a lot of difference for us.” The increase in gas price comes after the government raised petrol and diesel prices on Saturday, which is bound to have a cascading effect on everything from traveling fares to cost of food. But against expectations, fuel prices have been passed on without the deployment of any safety nets.

Pakistan’s gas regulator had recommended an almost 30 per cent increase in oil-benchmarked gas rates, placing an already cash-strapped government in a difficult position to deal with another inflation-brewing problem.

Oil and Gas Regulatory Authority (OGRA) determined 28 per cent and 31 per cent increase in gas prices in franchise areas of Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL), respectively.

However, even that determination of price increase did not take into consideration the recent hike in international oil prices, which means gas will be even more expensive in the coming months, documents of petitions available with The News suggest.

The increased gas price was calculated on the basis of crude oil price at $101 per barrel and rupee-dollar parity at Rs65, whereas now crude oil is trading at around $140 per barrel and rupee has depreciated further.The income of these transmission and distribution gas utilities is regulated by OGRA, which determines the reasonability of their expenditure and allows adjustments in gas prices to meet revenue shortfall, if any.

In case of SSGC, OGRA has determined a revenue shortfall of Rs22 billion and subsequently allowed an increase of 28 per cent or Rs58 per MMBTU in the price of gas. SNGPL’s revenue shortfall of Rs38.9 billion has resulted in an increase of 31 per cent or Rs65.16 per MMBTU in gas prices.

Industrial consumers like textile manufacturers bear the cost of subsidised gas consumed by fertiliser makers and domestic consumers. Tanveer Sheikh, President, Federation of Pakistan Chambers of Commerce and Industry argued that price of gas should have been capped as it is an indigenous fuel unlike imported petroleum products. “There is no point in giving any subsidy,” he said, adding agitatedly, “price should not have been increased in the first place.”

Arif Bilwani, a regular intervener at public hearings of petitions for gas price revisions, commented that the outcome was obvious. “Present government has an inclination towards agriculture. This result was expected,” He stated.Meanwhile, Abdul Sami Khan, Chairman CNG Stations Owners Association, said CNG price will be revised after formal notification of gas prices by OGRA.

http://www.thenews.com.pk/daily_detail.asp?id=121437