ISLAMABAD - In a bid to introduce a transparent mechanism for gas pricing, the Planning Commission has proposed to remove cross subsidy on gas while paying direct subsidy to special gas consumers and fertiliser plants and to charge unified rates from other consumers.

It was learnt from the Planning Commission that a proposal to end cross subsidy while directly paying the subsidy to special gas consumers including lifeline consumers and fertiliser plants and charge unified rates from other consumers is under study in the Commission. The Planning Commission is of the view that a transparent mechanism should be introduced for gas pricing in order to encourage consumption efficiency and switch to least-cost alternative fuels as an economic consumer’s choice. It also proposes charging full cost of supply from local and import sources. The Planning Commission has submitted above said proposals to the ministries concerned particularly the petroleum & natural resources ministry.

“Cross-subsidies should be minimised by enforcing unified sale prices except for lifeline consumers and direct subsidies be paid to special consumers including fertiliser sector to ensure transparency in subsidy,” says a policy document of the Planning Commission, adding that the gas sector suffers from cross-subsidies and low prices are being charged from fertiliser plants.

The policy document has further said that the consumer prices recover full supply costs but have remained low compared to alternative liquefied fuels owing to low wellhead gas prices that encourage inefficient use. It also discloses that average wellhead price of gas is $3.5 per million British thermal unit (mmbtu), accounting for 20 per cent of furnace oil price.

At present Pakistan has 29 trillion cubic feet of conventional gas reserves in which 40 to 50 trillion cubic feet of tight gas and over 50 trillion cubic feet of shale gas are located in lower Indus basin while around 150 trillion cubic feet of reserves are estimated to be in the whole Indus basin, excluding Balochistan and Khyber-Pakhtunkhwa. The Planning Commission, while expressing fear regarding a long-term decline in gas production as a serious threat to energy security, said that if no action is taken then the current production of around 4,000 million cubic feet of gas per day (mmcfd) will witness a severe decline sharply to around 2,500 mmcfd by 2020 and 400 mmcfd by 2030. The commission has further revealed that current gas shortage is ostensibly due to lack of exploration activities, which has exceeded to 2,000 mmcfd only on the pretext of security concerns and inaccessible areas.

It is also worth mentioning that the commission has proposed incentives and proactive policies while upstream policy and regulatory framework requires immediate attention of the petroleum ministry to exploit the huge gas reserves.