Thursday, May 22, 2008
By Saad Hasan

KARACHI: Following an unprecedented rise in oil prices, Pakistan’s gas regulator has 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) has determined a 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 this determination of price increase has not taken into consideration the recent hike in international oil prices, which means that the price will have to be increased further in the coming months, an industry official told The News. “This increase has been calculated on the basis of the crude oil price at $101 per barrel and rupee-dollar parity at Rs65,” the official said, adding “now crude oil is trading at $129 per barrel and the rupee has depreciated further. If this trend persists, gas will become more expensive.”

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 any revenue shortfall. 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.

The final decision to accommodate this increase in gas price among the different categories of consumers rests with the government. Taking into consideration past trends, it is very unlikely that the government will consider passing on the cost to residential consumers and fertiliser markers, who are highly subsidised.

However, Nisar Shekhani, Chairman Site Association of Industry (SAI), the largest industrial estate of the country, has cautioned that the manufacturing sector can not bear anymore cost-pushes. “We can not bear this increase. It is too much,” he said and explained that textile products, which make up more than 60 per cent of the country’s total exports, will be the worst hit. “Surging input costs have already left us uncompetitive in international markets,” he added.

He pleaded that the government should look into the possibility of subsidising residential and fertiliser consumers from its own resources, instead of using industry as a cross-subsidiser.

http://thenews.jang.com.pk/daily_detail.asp?id=113963