The Economic Coordination Committee (ECC) has postponed the implementation of gas pricing reforms which were intended to standardize gas tariffs for all fertilizer manufacturers. It is expected to aggravate Pakistan’s gas crisis, posing a threat to the long-term sustainability of the sector, as per official sources.

The delay comes as the gas sector’s circular debt surged to Rs2.9 trillion. Notably, the current practice of supplying gas to the fertilizer sector and applying varying tariffs have placed certain industry players at a disadvantage, as both (subsidized and regular) plants sell their products at the same price. Interestingly, the government had initiated the process of gas sector reforms to unify the tariff to win over the ballooning gas sector circular debt, a senior official of the Energy Ministry said.

The Ministry of Energy has been actively working to introduce gas pricing reforms over the past few weeks. The reforms aimed to unify feed gas prices for the fertilizer industry, aligning them with the industrial rate of Rs1,260/MMBTU. The fertilizer industry is a key consumer of both fuel and feedstock source gas. This move would have stabilized urea prices, optimized gas reserves and ensured a surplus in the Gas Development Surcharge (GDS) – crucial for gas infrastructure development and addressing gas shortages.

However, the ECC’s recent decision to form an inter-ministerial committee, comprising representatives from various ministries (including finance, planning, commerce, food security, industries, power, and petroleum), to recommend gas allocation and pricing for the fertilizer industry has caused a delay. The next ECC meeting is scheduled after the return of Finance Minister Dr Shamshad Akhtar from China.

The gas circular debt has reached Rs2.9 trillion, as disclosed by caretaker Federal Minister of Energy Muhammad Ali in a recent media briefing.

An analyst of the sector highlighted disparities in input costs for various producers, causing distortions in urea market prices for farmers. Some manufacturers are disadvantaged as they are supplied gas under the Petroleum Policy 2012 pricing, which is linked to USD and is affected by rupee devaluation and crude oil rate fluctuations. To maintain business viability, these manufacturers must adjust urea prices. Gas price unification is seen as the only permanent solution to stabilize fertilizer prices, curbing excessive profiteering and black-market activities.

Over the past five years, feed gas tariffs under the Petroleum Policy 2012 have surged by over 235 per cent, from Rs518/MMBTU to Rs1,745/MMBTU. The fuel gas tariff under the Petroleum Policy now surpasses the Fertilizer Policy tariff.

An industrial expert proposed that the fertilizer sector should contribute positively to the GDS by unifying gas prices across all manufacturers. Unifying gas rates at Rs1,260/MMBTU for feed gas could generate a GDS pool of approximately Rs90 billion for gas-producing provinces, serving as a targeted subsidy for small farmers.

He suggested that gas prices for the fertilizer sector should be subject to a bi-annual review to address changes in revenue requirements due to shifts in crude oil prices and exchange rates.


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2023-10-22

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