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Pak exporters oppose hike in gas prices PDF Print E-mail
Saturday, 19 April 2008

Pakistani manufacturers and exporters on Wednesday warned government against jacking up gas prices, saying a further increase in input cost will force them to cut exports owing to competition in international markets, according to Internet .

The warning comes days after country reported a record trade deficit of $14 billion for first nine months of the fiscal year (July-March 2007-08), deepening fears of a slowing economy and a weakening rupee. Federal Commerce Minister has indicated the deficit might balloon to $16bn by end of June. “If the increase is implemented there will be no growth in industry but certainly retardation,” said Nisar Shekhani, Chairman Site Association of Industry (SAI).

Speaking at the Oil and Gas Regulatory Authority public hearing on Sui Southern Gas Company’s petition seeking a hike gas tariff Shekhani said, “if cost of doing business goes on increasing how are we suppose to bridge the gap (trade deficit).”

Textile products, having a share of more than 60 per cent in total exports from the country are already suffering at hands of Bangladeshi rivals, which enjoy preferential access to developed countries, he said.

SSGC, which transports gas to consumers in Sindh and Balochistan, has sought an increase of Rs69.37 per MMBTU (million British thermal unit) in current average consumer gas price of Rs210 to meet its revenue requirement for fiscal 2008-09. The company operates under a regulated income regime.

This increase in consumer price follows a massive hike in cost of gas, which SSGC purchases from gas exploration and production companies at rates linked to price of imported oil.
Out of Rs69.37 per MMBTU increase sought, Rs67 alone is the cost of gas, leaving little room for any adjustment, officials explained.

However, while rise in gas price looks inevitable, industry fears it might be made to bear additional burden of residential consumers and fertilizer makers.
 
The average gas price will go up by as much as Rs90 per MMBTU for industrial and commercial consumers if government decides not to pass on the burden to the two categories of cross-subsidized customers.

“Nowhere in the world one industry is subsidized at cost of another,” Shekhani, said referring to preferential treatment meted out to fertilizer industry. “If government really wants to subsidize this sector it should do this from its own budget.”

But, analysts say, government is in no position to extend subsidies. Saad Bin Ahmed, head of research at Capital One Equities, said government will have to create some cushion in ever-increasing oil prices if gas price is not jacked up. “The issue of price differential claims (PDC) is before us. So that (government subsidy on gas) does not seem to be coming.”

Gas makes up 50 per cent of total energy mix and is the major fuel used by textile, power and other sectors. But in recent years, rising demand and stagnant production has made government to tight noose around a gas-for-all policy as expressed by its decision to increase cost of gas for residential consumers.

Still, people at the public hearing complained, compressed natural gas (CNG) stations are being allowed to set up despite the fact that poorest strata of society uses public transport, which runs on diesel.

Oil and Gas Regulatory Authority (OGRA) will announce the decision after government vetting by middle of next month.
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