KARACHI: The Caretaker Federal Minister for Energy, Power, and Petroleum, Muhammad Ali, has offered a ray of hope to the industry by assuring them of efforts to reduce the gas tariff, aiming to provide a more conducive environment for economic growth.
The pledge came following the industry’s mounting concerns over the surging gas tariffs, which had posed challenges to their sustainability.
During a meeting at the Karachi Chamber of Commerce & Industry (KCCI), Minister Muhammad Ali acknowledged the industry’s concerns and pledged to bring the matter to the Cabinet’s attention, emphasizing the need to curb the escalating gas tariffs, primarily driven by the mounting circular debt.
The Minister revealed alarming statistics about the gas sector, which has been grappling with severe losses, amounting to approximately Rs400 billion annually for several years. These losses swelled to a staggering Rs461 billion last year, culminating in the gas sector’s total accumulated losses of Rs2,100 billion, thus necessitating an increase in gas tariffs.
In response to the industry’s demands and concerns, Minister Ali shared the government’s ongoing efforts to release the pending Rs7 billion payable to industries for previous incremental consumption. Additionally, he disclosed plans to introduce a winter package for incremental consumption within the current year, aiming to provide some relief to the business community.
Elaborating on the rationale behind the gas tariff adjustments, the Minister explained that the Oil and Gas Regulatory Authority (OGRA) determined the tariff at Rs1350 per MMBtu based on an annual average, covering the losses of natural gas only and not factoring in the cost of more expensive LNG. As a result, the government made the decision to increase gas tariffs, placing 60 percent of the burden on domestic consumers, while ensuring parity with LNG prices for wealthier consumers.
The Minister emphasized that the tariff adjustments were designed to maintain the competitiveness of industries and exporters. The new rates of around US$8 per MMBtu align with those of competing countries like India (US$9) and Bangladesh (US$8.25). This measure also aims to reduce the gas tariff disparity between the northern and southern regions of the country.
Muhammad Ali further assured that the gas supply situation for the upcoming year would remain similar to the previous year. However, he stressed that the government had advised Sui Southern Gas Company (SSGC) to devise a mechanism to ensure consistent gas supply to industries throughout the year, not just in winter, to prevent extended closures.
Chairman of the Businessmen Group (BMG), Zubair Motiwala, welcomed the decision to raise gas tariffs for domestic consumers, as it is expected to discourage unnecessary gas consumption and allocate more resources for productive industrial use. Nevertheless, Motiwala urged the government not to accept the proposed increases of 86 percent for export-oriented industries and 117 percent for general industries, as these rates exceeded the industry’s expectations.
Motiwala emphasized the critical need for a balanced supply of gas and suggested returning 211 mmcfd of gas erroneously assigned to Sui Northern Gas Pipelines Limited (SNGPL) to SSGC. He also urged the fair distribution of gas to Baluchistan during the winter season to avoid overburdening SSGC.
In addition to gas tariffs, Motiwala highlighted the need to reduce electricity tariffs to support Small and Medium-Sized Industries, which play an essential role in the supply chain for exporters and import substitution.
President of KCCI, Iftikhar Ahmed Sheikh, echoed the industry’s concerns, labeling the steep gas tariff increases as “unviable, unacceptable, and unfeasible.” He implored the government to reconsider these rates to keep the wheels of industries in Karachi turning.
As the industry grapples with the burden of increased gas tariffs, the Minister’s assurances and the ongoing dialogue between the government and business community highlight the importance of maintaining a balance between economic growth and financial sustainability in the energy sector.
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