Textile millers urge govt subsidy on gas like petroleum
Thursday, January 03, 2008
By Saad Hasan
KARACHI: Following the increase in gas rates, the price of compressed natural gas (CNG) has been raised by Rs2.5 per kg to Rs36 in Karachi and the rest of Sindh, dealers told The News on Wednesday.
In Punjab and other parts of the country, the price of CNG, an auto fuel, has been increased by Rs2.5-Rs3 after the cost of gas sold to CNG stations was hiked by Rs26.49 per million British thermal unit (MMBTU) to Rs291.36 from previous Rs264.87.
The Oil and Gas Regulatory Authority (OGRA) on Tuesday notified revised consumer gas prices and passed on a big chunk of the burden of increased well-head cost of gas to people using CNG as fuel for their cars. This reflects its intention to restrict the growing popularity of the auto fuel as the country struggles to maintain supply to industrial units.
“CNG was promoted as an alternative to petrol to stop the haemorrhage of foreign exchange reserves,” said Malik Khuda Buksh, Chairman CNG Station Owners Association, implying petrol was a deficit product, which was imported.
But petrol is a surplus product in Pakistan as local refineries produce more than what is required, says Aftab Hussain, a general manager at one of the refineries. “If we take into consideration the international price of gas, it is heavily subsidised here. Some kind of rationalisation has to be worked out between the prices of competing auto fuels.”
Pakistan’s demand for gas, which is the main source of energy for the country, is rising by 10 to 11 per cent annually while production is flat at around 4,000 million cubic feet per day (mmcfd), which has pushed the government to tighten the noose around its gas-for-all policy.
The increase in the price of gas used as CNG and by cement-makers is part of a move to curtail the use of this natural resource, once considered to be amply available. Experts believe that a relatively low cost of gas has encouraged its use to the extent that now it holds more than 50 per cent share in the basket of total energy consumption.
The average production cost of gas in Pakistan is Rs176 per million British thermal unit (MMBTU), which is highly subsidised considering that even a conservative price estimate of imported gas comes to around Rs360.
According to one estimate, gas demand has outstripped supply by 800mmcfd, prompting the government to step up efforts to secure external sources of supply, the most vital being the transnational Iran-Pakistan-India (IPI) gas pipeline.
Unfortunately, against the prevailing gas cost of $2.9 per MMBTU, a conservative estimate puts IPI cost at $6 per MMBTU and LNG (liquefied natural gas) at more than $9 per MMBTU, meaning the country has to prepare itself for price shock in coming years.
When increase in the cost of imported fuel is passed on to power consumers, it will be a double whammy for the government.
“The government is having a hard time in maintaining existing subsidies. How can it be further increased?” wondered a National Electric Power Regulatory Authority (NEPRA) official. As per agreements with power producers, fuel cost had to be passed on to consumers, he added.
Even if the worries over the cost of imported gas are ignored for now, the policy of cross-subsidisation whereby the industry is made to pay part of the gas bill of domestic and fertiliser consumers hits the local producers every time the gas prices are revised.
“The government should make some other arrangement to give subsidy just like it does for petroleum products,” said Zubair Motiwala, owner of a textile mill. “We can not be part of this anymore.”