KARACHI: Revisions in the prices of natural gas approved by Prime Minister (PM) Imran Khan on Wednesday will hit the poorest segments of the domestic consumers hardest.

PM Imran Khan took the first unpopulist decision of his government on Wednesday as he approved a summary enabling the two government-owned gas utilities, Sui Northern Gas Pipeline Limited (SNGPL) and Sui Southern Gas Company (SSGC), to revise their tariffs. The summary will now be sent to the ECC. Earlier in the week, the SNGP had revealed that it purchasing natural gas from about 40 producers at an average rate of Rs629 per MMBTU (a million British Thermal Unit) and selling it at Rs399 per MMBTU, with a net loss of about Rs230 per unit. The increase in tariffs is based on estimated revenue requirements of the two utilities for the 2018-19 fiscal year.

A 186 percent tariff hike has been approved for consumers using less than 100 cubic metres of natural gas. Since the gas companies charge per million british thermal unit (MMBTU), a measure of energy, which equals 28.31 cubic metres of natural gas by volume, the consumers in the first slab (using less than 100 cubic metres) will have to pay Rs 294.55 per MMBTU, instead of the existing Rs105.15 per MMBTU.

Both commercial and residential consumers in the second slab (using up to 300 cubic metres per month) will have to pay Rs589.09 per cubic metre, instead of the existing rate of Rs210.31 per unit. This will be a hike of 180 percent.

The prescribed tariff for the third domestic slab (of more than 300 cubic metres per month) is Rs664.52 per unit, an upward revision of 26.4 percent from Rs525.76 per unit. The third commercial category will also face a 26.4 percent hike from Rs631 per unit to Rs797.42 per unit. The industries most affected by the hike will be those with large commercial operations, captive power plants, and IPPs.

On average, gas tariffs will rise by 46 percent if the PM’s proposal is endorsed by the Economic Coordination Committee (ECC) chaired by Finance Minister Asad Umar.

The revised tariffs will also have an indirect effect on domestic consumers whose cost of living will go up as prices rise for essential commodities produced and distributed at higher cost [of natural gas].

Commenting on the decision, Khurram Hussain, business editor at daily Dawn, said that sooner or later the government has to make such difficult decisions as current state-of-affairs cannot continue for too long. However, he said that a singular focus on price hike was not advisable, insisting that for the government to truly live up to its claim of changing the system it would have to bring pricing reforms in a number of areas. He said reforms were urgently needed in the gas sector to cut line losses.

Hussain said that it would be best to adopt an independent pricing mechanism, linked to the oil index.

He said the social implications of the approved hike would depend on how the ECC dealt with the matter. “If they implement the approved tariff without any revision, then the poorest consumers will indeed suffer more. The ECC can provide relief to these segments by passing the burden to industrial and commercial consumers.”

An analyst at JS Global Limited maintained that the gas price revision was an example of the challenges that await the new government as it tries to build a viable welfare state while addressing macroeconomic imbalances.

He said the increase in gas prices would adversely affect the cost of doing business and this would have a negative impact on the market.

He said that another unpopular decision might also be in the offing if the government proceeded with revising electricity tariffs.

Published in Daily Times, September 6th 2018.