Gas tariff hikes disastrous for industry, warn business leaders

KARACHI: Massive gas tariff hike in addition to rising power rates would cause a steep rise in production cost resulting in the closure of small- and medium-sized units, making exports uncompetitive and rendering thousands of employees jobless.

Just a day ahead of the Federal Cabinet meeting last Monday, Caretaker Minister for Energy, Power and Petroleum Muhammad Ali had assured the members of the Karachi Chamber of Commerce and Industry (KCCI) of trying his level best in the cabinet’s meeting to bring down the gas tariffs which were being raised to stop circular debt from further appreciation.

However, the cabinet approved up to 172pc rise for domestic consumers, 137pc increase for commercial consumers and 193pc for cement manufacturers effective Nov 1.

Reacting to the cabinet decision, Chairman of Businessmen Group (BMG) Zubair Motiwalla said “I do not think that there is any downward revision in gas tariff. Karachi will plunge into a deep crisis after the steep rise in gas prices.”

Reject unified prices for Sindh and Punjab

He said that the hike is not a serious issue for the industries of Punjab which had shifted to other means of running their industries on coal and other sources. Domestic consumers, power plants, fertiliser units and IPPs use gas in Punjab, but in Karachi, the situation is reversed as our units do not have spaces to pile up various resources to run industries.

In Punjab, industrial production mostly caters for local consumption as compared to 54pc of exports from Karachi out of total. Besides, running export-oriented industries on different sources would create environmental and compliance issues in Karachi which would fail to get export orders.

Value-Added Textile Exporters Associations Chief Coordinator Muhammad Jawed Bilwani said the massive hike in gas tariff would sabotage the already struggling value-added textile sector.

Saving two state-owned gas companies by escalating tariffs on the cost of the entire industry is highly deplorable. To end the circular debt of two companies, in this way, will create another circular debt for industries. Priorities to supply gas should be set on merit and fairness.

It is also a matter of concern that on one side some industries are exporting indigenous gas without value-addition and on the other side the government is importing RLNG, he added.

In an already enhanced gas tariff for industries, a 10pc would be further added in gas tariff as blended cost of RLNG, which would take gas tariff for export-oriented industries, thus adversely affecting exports by rendering value-added textile goods uncompetitive on the world markets. He lamented that rates recommended by Ogra were much lower than the ECC-recommended rates.

In the proposed recommendations of the tariff hike, those industries have been favoured who are exporting gas without value-addition. The government should consider evolving some mechanisms and do some homework by checking and examining the high profit-making industries going through their balance sheets and imposing such high tariffs to those industries which can sustain and afford such exorbitant hikes, he said.

Imprudently again priority has been given to domestic consumers and burdening the industry through cross-subsidy. The affluent class in the domestic sector has been given this subsidy, while the deserving poor and underprivileged class don’t have proper kitchens or even houses. The said subsidy should only be given to domestic consumers having 60 square-yard houses or plots, he suggested.

North Karachi Association of Trade and Industry President Faisal Moiz Khan said after adding RLNG supply cost the increase in gas tariff would reach Rs3,000 mmBtu and not Rs2,050 mmBtu.

He said Ogra had recommended a Rs 500 mmBtu jump in gas tariff to Rs1,600 but the federal cabinet came out with a massive hike which the industries rejected as it would collapse the small and medium-sized units.

He also disagreed that the gas tariff in Sindh has been kept on a par with Punjab as industries in Sindh especially Karachi deserve a reduction in tariff due to the bulk of gas production in the province, while Karachi contributes 54pc of share in total country’s exports.

SITE Association of Industry President Muhammad Kamran Arbi has termed the current gas rate hike disastrous and unviable for SMEs that form the backbone of industrial production.

He further said that the current economic situation does not have room for absorption of this rate increase.

Gas supply by SSGC to industries is just over 350 mmcfd which is roughly 10-12pc of total gas available, but this sector is bearing the brunt of cross-subsidies being doled out to other sectors.