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Gas crisis looms as $1 billion diverted to domestic sector | The Express Tribune


The gas sector is bracing for another blow as around $1 billion is earmarked for diversion of costly RLNG to the domestic sector in a bid to ease the gas crisis predicted for the 2024-25 financial year.

Public oil and gas entities are already crumbling under the weight of circular debt amounting to Rs710 billion, mainly due to RLNG supply.

Pakistan LNG Limited (PLL) is carrying a circular debt of Rs142 billion, while Pakistan State Oil (PSO) is saddled with Rs568 billion, all from the supply of RLNG to gas utilities.

The revelation comes from key stakeholders, All Pakistan Textile Mills Association Northern Region, who say diversion of RLNG to domestic consumers is set to incur a staggering cost of $1 billion this fiscal 24-25, representing 209 MMCFD (million cubic feet). per day).

Gas utility SNGPL had planned diversion of 80,155 BBTU RLNG to gas consumers in the system during the financial year 2024-25 at a cost of Rs 297,913 million or $1 billion, approved by the ‘ECC and ratified by the federal cabinet.

The RLNG’s circular debt was increasing due to the non-application of the weighted average cost of gas.

The PTI government had approved a bill on the weighted average cost of gas in Parliament, but it was challenged in the Sindh High Court.

The Oil and Gas Regulatory Authority (Ogra) has partially implemented the weighted average cost of gas, but it has not been fully implemented. Therefore, an amount of $1 billion would either be recovered from consumers or placed in circular debt.

The SNGPL wants a massive increase in gas prices to be implemented from July 1, 2024. The Ogra will hold a public hearing on Monday to consider an increase in gas prices.

Read also: APTMA wants deregulation of the gas market

A textile industry body-APTMA, in its comments submitted to Ogra, said gas prices have increased again to Rs2,750/MMBtu, an increase of 223% since January 2023.

The petitioner has projected an overall average prescribed price (Rs/MMBtu) of Rs4,446.89, with a price for all consumers of Rs4,501.33, effective July 1, 2024.

He said grid electricity rates are around 17.5 cents/kWh and rising with no end in sight.

As such, there is no financially viable source of energy with which companies could manufacture and compete in international markets,” the textile millers said, adding that tariffs in Pakistan are among the highest of the region.

However, these high tariffs pose significant risks to national security by hindering industrial growth, reducing competitiveness and increasing dependence on imports and aid,” the textile mills said.

Particularly in the manufacturing sector, which relies heavily on energy, soaring operating costs due to high tariffs are driving up consumer prices and triggering deindustrialization.

Sectors like textiles face growing challenges, with high electricity and gas prices affecting both production costs and consumer prices. The practice of cross-subsidizing natural gas and electricity for the residential sector at the expense of industries exacerbates the problem.

To maintain optimal tariffs, the Federal Government must peg industrial tariffs to the price prescribed by OGRA, thereby establishing a benchmark and protecting tariffs from inefficiencies in the power sector,” the textile mills added.

Air Mix LPG, priced at around $33 per MMBtu, is sold as natural gas (NGS) at PNG domestic consumer prices, resulting in a significant deficit that industrial consumers cross-subsidize.

Read: Gas becomes scarce in Ramazan

However, the high initial investment in infrastructure may not be recoverable through sale, and ongoing depreciation and maintenance costs further burden industrial consumers.

Domestic sector consumption in the two networks of Sui Southern Gas Company Ltd. (SNGPL) increased by more than 4%, from 310 BCF in FY 2022 to 323 BCF in FY 2023, with the highest UFG rates and cost of service.

The petition mentions a further planned drop of 12% in SNGPL’s indigenous gas production with an increase in sales to the domestic sector.

Only 28% of the country’s population is served by gas, both local and imported, with a diversion of over 200 MMCFD of RLNG at a price tag of $1 billion.

The efficiency of gas appliances in Pakistan’s domestic sector is one of the lowest in the world, wasting scarce resources for decades to the tune of $1-$3 per MMBtu.

Captivity at $11.7 remains a key issue, adding economic value to gas and boosting exports,” Millers said, noting that the gas sector faces many challenges, including high rates of unaccounted for gas. (UFG), inadequate infrastructure and inefficient use of gas appliances. in the domestic sector.

Market deregulation can promote competition and innovation, while administrative prices set by the federal government should be revised to prevent rent-seeking behavior and ensure efficient allocation of resources,” the textile mills said.

Addressing Pakistan’s energy tariff challenges requires a multi-dimensional approach, including tariff rationalization, promotion of alternative energy sources and reforms in the gas sector. By implementing these measures, Pakistan can achieve a more sustainable and efficient energy ecosystem while promoting economic growth and competitiveness,” APTMA added.

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