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Sunday, June 27, 2010

Beware consumers! It is not relief, it is market mechanism….

When government has to increase prices of gas and petroleum, it says it is doing so because of increase of prices of these commodities in global market. This makes sense…But when the international market turns down, the government either does not reduce the prices, or if it does so, it never acknowledges the fact that prices are being reduced pursuant to decrease in the market. It simply says it is providing relief to people. This is what it is going to do in the near future.

Business Recorder has reported that the government is expected to cut oil and gas prices, in a bid to provide relief to the consumers, from new financial year beginning from July 1, 2010. The government may provide relief to the domestic consumers only regarding cut in gas prices. According to calculation of Oil and Gas Regulatory Authority (Ogra), the government may have space to reduce oil prices by Rs 3 or Rs 4 per liter in line with reduction in global oil prices. Sources told the paper that the Ministry of Petroleum had submitted three proposals to the Finance Ministry. First, to make no change in current gas prices. Second, to reduce gas tariff slabs from existing 7 to 3 or 4 for providing relief to domestic consumers.

Third option may be availed to make downward revision of 2.55 percent (Rs 4.53 per MMBTU) for domestic consumers in the average prescribed price of Sui Northern Gas Pipeline (SNGPL) as well as Sui Southern Gas Company (SSGC) as determined by Ogra.

Ogra has allowed SSGC a hike in gas price by 9.23 percent and 2.55 percent reduction for SNGPL. But the Petroleum Ministry has proposed to Finance Ministry to reduce gas prices for domestic consumers, either by making cut in gas tariff slabs or implementing the decision of Ogra to reduce Rs 4.53 per MMBTU gas price. "But the downward revision in gas tariff for industrial, commercial, CNG, fertiliser and power sectors has not been proposed," sources added.

They said that the government would take the applicable gas tariff of Rs 321 per MMBTU by SNGPL, which is higher than rate effective by SSGC. The reason for keeping prices unchanged for consumers other than domestic has also been attributed to hike in excise duty on gas from Rs 5 to Rs 10 per MMBTU under National Finance Commission (NFC) Award to compensate the loss of Sindh under revised Gas Development Surcharge (GDS) formula.

Even after raise in gas price of Rs 22 per MMBTU, as determined by Ogra for SSGC, its gas price will be Rs 315 per MMBTU, which is still lower by SNGPL rate," sources said, adding that due to this disparity in gas price between two gas utilities, the government may keep existing gas prices unchanged, except cut in gas tariff for domestic consumers.

Sources said that the subcommittee of the Public Accounts Committee (PAC) had proposed to reduce gas tariff slabs from seven to 3 or 4 to provide relief to the domestic consumers. In current mechanism, seven slabs for domestic consumers are applicable. The price for slab-1 is Rs 95.01 per MMBTU, Rs 99.48 per MMBTU for slab-2, Rs 181.10 per MMBTU for slab-3, Rs 383.42 per MMBTU for slab-4, Rs 498.80 per MMBTU for slab-5, Rs 648.43 per MMBTU for slab-6 and Rs 860.15 per MMBTU for slab-7.

SSGC had sought increase of Rs 60.35 per MMBTU in the current average prescribed price but Ogra allowed raise in gas price by 9.23percent (Rs 22.92 per MMBTU).On the other hand, SNGPL requested for increase in gas tariff by Rs 20.36 per MMBTU which was turned down by the Authority.

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