Gas crisis likely to worsen amid delay in ECC’s gas pricing reforms

Flames from a gas burner are seen on a cooker at a private home in Bad Honnef near Bonn, Germany on October 11, 2021.  - Reuters
Flames from a gas burner are seen on a cooker at a private home in Bad Honnef near Bonn, Germany on October 11, 2021. – Reuters
  • The delay comes as the gas sector’s circular debt rises to Rs 2.9tr.
  • The government initiated gas sector reforms to unify tariffs.
  • In 5 years, feed gas tariffs increased by more than 235%.

ISLAMABAD: Delay in implementation of gas pricing reforms aimed at standardizing gas tariffs for all fertilizer manufacturers is likely to aggravate the gas crisis and threaten the long-term sustainability of the sector. news This information has been given quoting official sources.

The delay in the Economic Coordination Committee (ECC) meeting came as the circular debt of the gas sector has increased to Rs 2.9 trillion.

Both subsidized and regular plants sell their products at the same price, which is why some industry players are placed at a disadvantage due to the imposition of different tariffs on them and the ongoing practice of supplying gas to the fertilizer sector. Has gone.

Interestingly, the government had initiated the process of gas sector reforms to integrate tariffs to overcome the rising circular debt of the gas sector, a senior power ministry official said.

The Energy Ministry has been actively working on bringing gas pricing reforms for the last few weeks. The reforms were aimed at unifying feed gas prices for the fertilizer industry, aligning them with the industrial rate of Rs 1,260/MMBtu.

The fertilizer industry is a major consumer of both fuel and feedstock source gas. This step will stabilize urea prices, optimize gas reserves and ensure surplus in Gas Development Surcharge (GDS) – which is critical for developing gas infrastructure and addressing gas shortage.

However, the ECC proposed to form an inter-ministerial committee comprising representatives from various ministries (including finance, planning, commerce, food security, industry, power and petroleum) to recommend gas allocation and pricing for the fertilizer industry. Delay due to recent decision. The next meeting of the ECC is scheduled after the return of Finance Minister Dr. Shamshad Akhtar from China.

Acting Federal Energy Minister Muhammad Ali recently revealed in a media briefing that the gas circular debt has reached Rs 2.9 trillion.

An analyst in the sector highlighted disparities in input costs for different producers, creating distortions in urea market prices for farmers. Some producers suffer losses as they are supplied gas under the Petroleum Policy 2012 pricing, which is linked to the USD and is affected by rupee devaluation and crude oil rate fluctuations.

To maintain commercial viability, these producers will have to adjust urea prices. Gas price integration is seen as the only sustainable solution to stabilize fertilizer prices, curb excessive profiteering and black marketing activities.

Over the last five years, the feed gas tariff under the Petroleum Policy 2012 has increased by more than 235%, from Rs.518/MMBtu to Rs.1,745/MMBtu. The fuel gas tariff under the petroleum policy is now higher than the fertilizer policy tariff.

An industry expert proposed that the fertilizer sector should contribute positively to the GDS by unifying gas prices among all manufacturers. Integrating gas rates for feed gas at Rs1,260/MMBtu could generate a GDS pool of about Rs90 billion for gas producing provinces, which would serve as targeted subsidy for small farmers.

He suggested that gas prices for the fertilizer sector should be subject to bi-annual review to address changes in revenue requirements due to changes in crude oil prices and exchange rates.

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