The implication of gas price hike
The current debate over the increase in gas prices has been criticised by the general public and has also created panic in the commercial sector regarding the higher cost of production. The price increase comes at a time when winter is approaching and gas consumption will automatically increase. Thus, the expected burden will increase drastically contrary to the claims of the government.
However, the price hike is an inevitable step after the global gas price increase and the depreciation in the exchange rate which makes imports more costly. Gas prices have not been increased in the past few years which is also one of the factors behind the price increment. Apart from this, the decision has been taken to overcome the financial losses of Sui gas companies.
Financial statement of Sui Southern Gas Limited (SSGL) mentioned that during 2015, the company suffered from a loss of Rs 6.4 billion which increased to Rs. 24.8 billion in 2016. In line losses, were more than 50 percent due to theft. Oil and Gas Development Company Limited (OGDCL) earns around Rs 200 billion from state-owned gas utilities including Sui Southern Gas Company and Sui Northern Gas Pipelines Limited. However, the revenue shortfall of gas companies will also decrease as the price increase will bring around 94 billion.
Although the Gas theft act of 2016, stated the timely recovery of due amounts and the prosecution of gas theft cases, but the act is still not implemented in its true spirit. In addition to this, OGDCL allowed SNGPL and SSGL to charge consumer ‘gas sales’ to overcome the losses incurred by theft.
Overall, the increase in the commercial use of gas is 40 percent, resultantly increasing the pressure on the domestic industry which is already facing fierce competition at the global level. PTI’s plans to construct 5 million houses is hindered by the 30 percent increase in gas rates for cement industry, which in turn will confine the growth of the sector; making it difficult for the industry to meet the massive requirement.
Apart from the cement sector, textile, chemicals, and steel sectors are others upon which gas prices will have an adverse impact. Urea prices will increase, thus an indirect impact on agriculture is also expected. Pakistan’s cost of doing business ranks at 147 out of 190 economies already, and the price hike will further burden the commercial sector. Our industry is still heavily reliant on natural gas which makes them vulnerable to any minor change in gas supply or price levels.
Stringent measures are required to control gas theft for which federal and provincial governments can coordinate to take prompt judicial action. Recovery from gas defaulters can increase the revenue and help in overcoming the shortfall
The price hike is likely to be followed by inflation because of which the lower segment of the society will be burdened. Domestic users who are using up to 100 units will face a 15 percent increase, and there are 28 percent such users according to government statistics. CNG prices will also continue to increase thus the traveling expenditure of commuters who use public transport will increase as well. Moreover, shortage of gas supply during winters will increase the cylinder prices.
People have pinned their hopes on the new government to provide them relief, which includes a lower cost of living.
Stringent measures are required to control gas theft for which federal and provincial governments can coordinate to take prompt judicial action. Recovery from gas defaulters can increase the revenue and help in overcoming the shortfall. The technical losses of the sector require investment in infrastructure which includes the replacement of old wires and cables.
It’s an uphill task for the new government to keep a balance between revenue generation and the welfare of the general public. A weak economic situation and the widening budget deficit has compelled the government to take strict actions for revenue generation. But the government must keep in mind that economic activities will only flourish based on the competitive cost of production for the industry.
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The opinions expressed in this article are the author's own and do not necessarily reflect the viewpoint or stance of SDPI.