Gas Tariff to Increase in January 2016 due IMF Pressure

Written by  Published by:Pakistan Views Monday, 19 October 2015 10:03

ISLAMABAD: The government has given a commitment to the International Monetary Fund (IMF) to increase gas tariff in January 2016 to recover the losses of gas utilities and to charge the cost of imported liquefied natural gas to consumers on a monthly basis.

In a written statement given to the IMF, Finance Minister Ishaq Dar said that as required under “prior action” for disbursement of $506 million two weeks ago, the government had partially recovered the losses incurred by gas companies due to delayed price notifications of fiscal year 2014-15, through increased tariff notified and implemented on Aug 31.

“The remaining losses will be recuperated in the January 2016 gas price notification,” wrote the minister, adding that the government “will also make any necessary adjustments to notified prices to reflect prices of imported gas so that the cost of this gas will be fully reflected in the tariff on monthly basis”.

He said the government could not notify increase in gas tariff due in July 2014 and Jan 2015 but it remained committed to a gas price rationalisation plan to encourage new investment, promote efficiency in gas use, ensure there were no fiscal costs from the gas sector and eliminate distortions from the existing gas price structure. He said the government was now gearing up to implement the plan fully.

Mr Dar said that under the Gas Infrastructure Development Cess Act passed by the National Assembly and signed by the president in May this year the government had recovered Rs57 billion and would continue to focus on areas where collecting agents were collecting cess in accordance with the act.

He said the government was now evaluating the downstream gas business with the objective of reducing inefficiencies in the transmission and distribution segments of the sector.

In this respect, the World Bank recently awarded a contract to some consultants to support a study on the restructuring, unbundling and eventual privatisation of the two gas utilities.

The study would formulate recommendations based on international best practices to segregate the gas network into a transmission company and multiple distribution companies having independent profit and cost centres to ensure maximum efficiency. A mechanism would also be developed for determining separate transmission and distribution tariffs.

The minister informed the IMF that the government had awarded 46 concession contracts for exploration of new blocks under the 2012 petroleum policy and was expecting to award another 10 to 15 contracts by the end of December.

He said the government was now publishing quarterly performance reports of the petroleum sector and trying to fill vacant positions in the Oil and Gas Regulatory Authority (Ogra) to improve governance in the sector.

He said the government had recently appointed the finance member in Ogra but failed to select the member for oil. The post had been advertised again with revised criteria and the selection process was in progress.

While the government was committed to further encouraging bilateral contracting between producers and consumers, Mr Dar said, Ogra was reviewing rules for third party access to the gas transmission system.

He said the government had asked the gas utilities to reduce losses by following international standards through investment measures, managerial and administrative improvements and building the capacity of the companies.

He reported to the IMF that average unaccounted for gas losses (UFG) had been reduced to 11 per cent at the end of June from 12.2 per cent as of March 15, but did not explain how the losses had been brought down.

He said the gas companies had submitted loss reduction plans to the government and the Sui Southern Gas Company was working with the World Bank on a scheme called the Natural Gas Efficiency Project.

He said the president promulgated the Gas (Theft Control and Recovery) Ordinance in Jan 2014 which had been sent to the parliament. The Senate approved the ordinance but the law lapsed because of a prolonged delay in the convening of a National Assembly session after de-seating of former speaker Ayaz Sadiq.

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