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Gas Price hike brings to fore the Punjab-Sindh Energy Cost Disparity

KARACHI: The latest increase in gas prices apparently brought the industrialists of Punjab against those of Sindh.

After the latest hike, Punjab-based industrialists are supposed to pay $9/mmbtu. It is almost three times higher than the gas rate enjoyed by their Sindh-based counterparts.

The All Pakistan Textile Mills Association-North via media ads demanded of the government that it should do away with different gas rates for the export-oriented industrial units of Punjab and Sindh by adopting a uniform price of $7/mmbtu

Optimus Capital Management Ltd Chairman Asif Qureshi said “It’s unsustainable to supply gas to Sindh-based industrialists at (nearly) $4 per unit. Charging such a low rate makes no sense because industrialists are already competitive at $9 per unit”.

Mr Qureshi cited the average gas rate for Bangladesh’s export sector, which is about $8.50 per unit. He highlighted that the disparity in the price of energy put Punjab-based industrialists at a cost disadvantage.

The Tax problem

“The export industry gets taxed on its turnover, not profit. So all the excess profits arising out of the energy cost savings will go straight into the pockets of Sindh-based industrialists”. Mr Qureshi said “about 15-20 big industrialists are going to be major gainers”.

Under the constitution, the province producing gas has the first right to use it. A substantial part of natural gas produced in Pakistan comes from Sindh.

Sui Southern Gas Company Ltd supplies about 350 mmcfd to the industry and captive power plants. This includes both export and non-export. With the price difference of $5 per mmBtu, the cost advantage to the industry in the south is at least $575m/year.

“The differential is a lot bigger when re-gasified liquefied natural gas price paid by the non-export sector in Punjab is taken into account,” he added.

Policy Bad for Investment

Pak-Kuwait Investment Company Ltd Head of Research Samiullah Tariq said the disparity in the gas prices for export-oriented units is unjustified. He added that it pitches one group of industrialists against another for no sound reason.

“This policy is bad for investment. One’s profit should not be solely driven by the location of their factory,” he said.

Mr Tariq said the increase in gas prices is lower than expected because the objective appears to stop the fresh build-up of the circular debt within the gas sector.

“Many analysts expected stock clearance would also take place via the price increase, but that’s not happened,” he said, adding that there’s still “a lot of room” for a further hike in gas prices for domestic users.

An outcry against Domestic Consumers

Mr Tariq said, a substantial part of the domestic consumer base will remain shielded from the hike, even though the weighted average cost of gas will go up 43pc. The price hike put the price to Rs885 from Rs620 per mmBtu.

With the increase in the number of domestic household slabs from six to 10, the government has introduced the definition of “protected” consumers. These consume on average 90 cubic metres or less in the four winter months from November to February.

“The definition doesn’t take climate differences across major cities into account. Winter is much milder in Karachi than in Quetta or Islamabad.

Mr Qureshi said a lot of affluent households in Karachi might fall into the protected consumer category”. He noted that his gas consumption in a household of six people was 55 cubic meters in January.

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