Govt plans to raise gas prices for industry

* New hike is likely to raise gas cost by 17 percent for fertilisers and captive power plants

Staff Report

LAHORE: The government is planning to raise gas prices in the upcoming budget 2012-13 effective from July 2012. The new hike is likely to increase the gas cost by 32 percent and 17 percent for fertilisers and captive power plants, respectively.

Industry sources said that the government had already imposed the cess effective from January 2012 while another unprecedented jump is awaited. It will enhance cost of cement by Rs 7 per 50 kg bag, as the energy cost of cement sector will likely to jump by Rs 1.22/kwh.

They said that the fertiliser industry consumed 15 percent of the country’s gas. Though no proper plan has been approved by OGRA to regulate gas prices in Pakistan, there are reports that some proposals have been launched to raise fertiliser gas prices by Rs 87-100 per mmbtu (up 17-32 percent). It is estimated that the said increase in gas prices would increase urea cost of production by Rs 165 per bag. On January 1, the government increased fertiliser feedstock prices (on old plants) by Rs 197 per mmbtu and fuel prices by Rs 74 per mmbtu.

Sources said that this cess increase is likely to be formalised through the Finance Bill 2012, in the upcoming budget. This latest hike in cess has taken place with the aim of providing the federal government a breathing space of approximately Rs 55 billion in lieu of the staggering power subsidy bill.

According to industry experts, the fertiliser companies are likely to witness a substantial 32 percent increase in the price of feedstock gas to Rs 413.3/mmbtu. The prevailing inventory situation of the industry indicates that there is little likelihood of pass through the additional cess to the final consumer in the immediate future, and this view is further supported by the recent temporary reduction in selling prices by urea manufacturers in an attempt to offload their huge inventories.

They said further that the increase in the gas price is likely to affect cement manufacturers due to power intensive nature of cement manufacturing, as the electricity cost of cement industry will be jumped by Rs 1.22/kwh.

They said that most of the cement companies have gas fired captive plants for electricity generation. In addition to this, companies relying on national grid may also face tariff revision due to increasing fuel cost for independent power producers. Calculation suggests that this increase in cess can augment the electricity tariff by Rs 1.22/kwh. They said the cement manufacturers would be unable to pass on this cost push to the end consumer as they were already facing a declining trend in sales and export volumes. However, an expected FED decline of Rs 10 per bag in the upcoming budget may provide a cover to pass on this cost-push. As per calculations, cement manufactures will be forced to increase their prices by Rs 7 per 50 kg bag due to unprecedented hike in gas cess.

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