ISLAMABAD, Aug 25: The World Bank has started putting pressure on the government to bring gas tariff in the country on a par with international prices, both for domestic and commercial consumers.

In a recent study of the Bank (Pakistan Oil and Gas Sector Review) released on Monday it has resorted to the disingenuous argument that Pakistan was losing up to $375 million (Rs22.5 billion) annually as a result of gas supply curtailment to the industrial and power sector due to higher household demand in winter.

Another Rs14 billion is lost, as the study put it, every year as subsidy to the fertiliser sector, which never reaches the farmer and is consumed by the fertiliser industry. Despite this subsidy, the fertiliser prices in Pakistan are at times higher than the international prices.

“Just for the power sector, the curtailment has been estimated at about 65 BCF (billion cubic feet) equivalent to 1.5 million tons of fuel oil, resulting in incremental costs (cost of imports minus the cost of gas) of approximately $200-250 million, on account of additional fuel oil imports.”

Power sector consumes about 37.9 per cent and industrial sector around 19.1 per cent. The consumption of industrial sector and household is 23.3 per cent and 14.6 per cent, respectively.

If Pakistan could harness the full potential of its gas resources, fuel oil imports would be reduced by 4.5 million tons per annum for an annual saving of about $650 million. Pakistan’s remaining gas reserves are estimated at 27 TCF (Trillion Cubic Feet) which are enough for 25 years at current production level but the consumption is increasing at the rate of seven per cent per annum.

The World Bank criticised Pakistan’s policy on retail consumer gas tariff, which continues to be fixed by the government, thus limiting the role of Oil and Gas Regulatory Authority (OGRA) to only prescribed wellhead prices.

Retail gas tariffs need to be made consistent with the cost of service to the different classes of consumers. Large subsidies are given to the minority of 18 per cent households who have access to about Rs9 billion annually in economic terms and the fertiliser industry gets about Rs14 billion in subsidies.

With respect to households, over 90 per cent of the volume of gas is sold under the subsidised tariff applicable to the first two slabs but which is applicable to high volume consumer as well. The World Bank wants that the slabs should be brought down so that large domestic consumers do not enjoy this subsidy. The Bank says that an average increase in tariff of approximately 70 per cent for the upper income household would be required.

The World Bank has asked the government to immediately implement a transparent and predictable gas pricing framework from the wellhead to the retail levels in such a way that tariffs are consistent with the cost of supply, subsidies are gradually phased out, the cost of gas as a commodity becomes a pass-through item and the margins of gas companies are determined in advance so that they respond to efficiency incentives.

The Bank report says the dual pricing system of prescribed rates and retail tariffs should be abandoned so that OGRA is entrusted with the determination of retail tariffs and the development surcharge becoming a volumetric tax in the process.