LAHORE - The government has assured the World Bank that it would change the existing gas formula and take step in phasing out the gas subsidy for the first slab of domestic consumers, sources concerned told The Nation here Tuesday A highly-placed petroleum ministry official confirmed that the Bank came up with its harsh stance underscoring the need for abolishing the subsidy from the first slab of domestic consumers, which was the Bank's longstanding demand. The sources said though the government has been resisting vis-a-vis gas pricing mechanism, it has now assured the World Bank that it would change the existing formula. As per the sources, elimination of subsidy would require an increase in the average gas tariff of about 65 percent. If 70 percent of consumers are cross subsidised, the bottom 30 percent and the subsidy for the household sector as a whole would be eliminated. These users will face an average increase of about 70 percent in their bills, which would be eliminated in different phases and the government would be taking this first step in the near future. As the exiting formula provides for gas supply to the low-income group at concessional rates, the World Bank has been demanding its withdrawal in phases. Before yielding to the Bank demand, the government was of the view that protecting the low-income group's interests by giving subsidy on gas rates was necessary and the same policy would remain in vogue in future. The World Bank had been demanding a cut in the size of the fist slab of consumers so as to do away with its subsidy-based gas pricing system. The Bank was of the view that the existing gas pricing system was causing domestic fuel disparity and hurting the low-income gas consumers. It estimated gas subsidy at Rs 9 billion annually and cautioned that continuation of the exiting gas pricing system could disturb the economy. According to the Bank's demand, the gas price subsidy benefits higher income urban families disproportionately, creating pro-rich subsidy inequalities. It noted, in addition to this situation the cost of alternative hydrocarbon fuels is considerably higher. The Bank strongly recommended that reduction in the size of the first slab would help the SSGC and SNGPL get out of problematic pricing system. The WB was of the view that Oil & Gas Regulatory Authority (Ogra) does not have the authority to determine retail tariffs. It sets prescribed rates, which represent the price of gas. It added the difference between retail tariffs for each category of consumers and prescribed rates accrues to the government as gas development surcharge (GDS). It said the commercial, industrial and power consumers, the subsidised households and fertiliser producers besides subsidised tariffs do not even cover the cost of gas as a commodity. The economic cost of subsidies to households is estimated at about Rs 9 billion annually. The subsidy is largely due to the first two slabs of the retail tariffs. The first slab accounts for some 54 percent of the consumers in the winter, and 82 percent in other months. Given also the increasing block structure, consumers in higher slabs still benefit from subsidised first slab, as a result, two-third of the gas is sold under the first slab rate and 90 percent under the first two slabs.