Pakistan to likely face another 41% hike in gas prices from July

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VIAZafar Bhutta
SOURCEThe Express Tribune
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ISLAMABAD:  Consumers, already reeling from a rise in inflation, should brace for another 41% hike in gas prices from the next financial year beginning July 1, 2019.

Already, the Pakistan Tehreek-e-Insaf (PTI) government had increased gas prices by up to 143% last year and revised consumer slabs, which resulted in inflated bills. As controversy built over the inflated bills, Prime Minister Imran Khan later directed public gas utilities to reimburse the amount to 3.2 million consumers.

The Pakistani rupee is likely to depreciate further as the utilities have been given the go-ahead to calculate gas prices on the basis of exchange rate of Rs180 against the US dollar to determine their revenue requirement for the next financial year 2019-20.

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The Petroleum Division was given the permission to calculate gas prices on the basis of the higher exchange rate. Economic decision makers, in a recent meeting, gave approval for increasing consumer prices to meet revenue requirement of the gas utilities.

The Petroleum Division presented, in a meeting of the Economic Coordination Committee (ECC), the position of Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) on revenue requirement, revenue generation and shortfall in 2018-19 and 2019-20.

It was stated that the projected revenue shortfall for the two utilities would be Rs75 billion and Rs156 billion for 2018-19 and 2019-20 respectively. It was further informed that 90% of the revenue requirement comprised the cost of gas, which was dollar-based and, therefore, the revenue calculation was made keeping in view the exchange rate.

On that basis, it was suggested that a 41% hike in gas prices was required to meet the shortfall in revenue requirement of the two companies.

During the meeting, the economic decision makers noted that the exchange rate of Rs180 was quite higher as the rupee would not depreciate to such an extent during financial year 2019-20.

The meeting was informed that by adopting the exchange rate of Rs150 per US dollar, the revenue shortfall would come down.

The Petroleum Division submitted the plan for financial sustainability of the gas sector during 2019-20. The revenue requirement for financial year 2019-20 is to be determined by the Oil and Gas Regulatory Authority (Ogra).

According to the Petroleum Division’s assessment, the revenue requirement of financial year 2019-20 would be Rs594 billion, projected sales revenue would be Rs437 billion and shortfall would be Rs156 billion.

It was of the view that the increase in gas sale prices would be 41% from July 1, 2019. However, Ogra will determine prices for financial year 2019-20 by mid-May.

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Ogra will need to review all previous revenue shortfalls separately up to June 30, 2018 and for the remaining financial year 2018-19.

The Petroleum Division asked the ECC to direct Ogra to consider the presumed exchange rate of Rs180 against the dollar for its projections for the next financial year. It emphasised that approval by the ECC and cabinet should be given by the end of June 2019.

The ECC considered the gas sector’s financial sustainability plan for 2019-20 and directed the Petroleum Division to request Ogra for determination of the revenue requirement of SNGPL and SSGC for the year and revision in gas prices in view of their revenue shortfall effective July 1, 2019.

Published in The Express Tribune, March 15th, 2019.

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