New gas connections allowed


-Editorial

WEB DESK: The Federal Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi informed the National Assembly standing committee on Petroleum and Natural Resources that the Prime Minister had approved lifting the moratorium on new gas connections.

The reason, he explained, was because the gas producing provinces had requested that the moratorium on new connections be lifted notably Khyber Pakhtunkhwa (KPK) and Sindh; he however acknowledged that while new gas connections in the gas producing provinces would face no issues of pressure yet there would be low gas pressure in Punjab which is not a producing province.

The PPP-led coalition government had imposed the moratorium on new gas connections in 2010 in response to the rising supply-demand deficit. Supply of gas was limited to domestic output while demand for gas connections has been historically managed in Pakistan through placing a moratorium on new gas connections and not through allowing Sui Southern and the Sui Northern companies to set the price where demand and supply are in equilibrium.

The gas tariff was previously set on the basis of the cost of its extraction from domestic wells, which was obviously lower than the cost of imported gas/Liquefied Natural Gas, and was also considerably lower than other fuels, including the cost of imported oil and products. In other words, the gas tariff fuelled an imbalance between the prices of different fuels prompting economists to argue that the price of all fuels should be based on their calorific value measured in BTUs which is a measure of the quantity of heat energy required to raise the temperature of one pound of water by one degree Fahrenheit – a stance supported by international donor agencies.

The 10th quarterly mandatory review dated 25th March 2016 under the ongoing 6.64 billion dollar Extended Fund Facility by the International Monetary Fund notes that the “staff welcomed the authorities’ commitment to resume semi-annual notification of gas tariffs in the next round and reset the tariff in July 2016, in order to ensure cost recovery and avoid the build-up of losses for gas companies due to a delayed notification. A long-term Liquefied Natural gas (LNG) import contract was finalised in December 2015, which would allow for larger LNG imports to meet domestic demand.

The price of imported LNG continues to be fully passed through to consumers. More than a two-thirds of the conversion of existing domestic gas concessions to higher producer prices under the 2012 Policy was completed and the remaining ones are being reviewed. Following a small delay, the Gas (Theft Control and Recovery) Ordinance 2014 is expected to be enacted shortly by Parliament (missed) end February 2016 structural benchmark and prior action and will help improve governance in the gas sector.” These are comprehensive reforms and from an economic perspective must be supported.

Notwithstanding the rationale provided by Shahid Khaqan Abbasi, the timing of the Prime Minister’s approval, 4th May 2016, is being cited as a more relevant motivation for lifting the moratorium. Subsequent to the Panama leaks on 4th April 2016 which cited the names of the Prime Minister’s three children as possessing considerable wealth in offshore accounts the Prime Minister has gone on the offensive by holding public meetings while inaugurating federally-funded development projects; he has already held two such gatherings in KPK where the government is run by the party clamouring the most for an independent inquiry namely the Pakistan Tehreek-e-Insaf and has announced that the federal as opposed to the provincial government would lay down the gas pipelines to supply gas to these areas amidst much applause.

One can only hope that this is not a factor in lifting the moratorium and that the government takes decisions based solely on their economic feasibility.

Source: Business Recorder

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