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What The Experts Have To Say About Pti's 46% Gas Tariff Hike

Prime Minister Imran Khan's recent sanctioning of the petroleum division's request to hike gas tariff by an average of 46 per cent has drawn mixed response from economy and industry experts, with some questioning the timing and the potential impact of the move and others claiming that the hike was long overdue.

On Tuesday, PM Khan, in what was the first major policy decision of his young rein, gave his go-ahead to the tariff increase, of which domestic consumers would have to bear the heaviest brunt.

Once the new tariff goes into effect, the price for domestic consumption will be increased by an eye-watering 186 per cent, whereas commercial consumers will also have to pay 26 per cent more for the utility.

Take a look: Raise gas prices or risk circular debt, warn two CEOs The development, which could have implication on both the economy and the general public, drew a mixed response from experts when approached by Dawn.com.

'Producers will pass on impacts to consumers'
Aizaz Shaikh, a member of All Pakistan Cement Manufacturers’ Association's executive committee, feels that not only is the rate hike justified, but that it should have been done earlier.

"The government has taken the decision while facing an immense pressure," he pointed out. "How long can the government subside the gas sector?" "The decision is reasonable," said Shaikh, who went as far as saying that the previous regimes should have pulled the trigger much earlier.

"Though gas is a natural resource, it is being purchased. It would not be wise for any entity or the government to purchase gas on one rate and sell it on half its original price. We are not saying that the government should be profiting off of gas but it should not subsidise it either."

When asked about the possible implications of the decision, he said: "As the producers pass on the impacts of the raised tariff to the consumers, the price of products will increase, and sales will diminish."

'Wrong decision in wrong direction'
Senior economist and former Punjab finance minister Dr Aisha Ghaus Pasha describes the hike as "a wrong decision in the wrong direction".

"The massive hike in the tariff will increase the cost of production, which will end up in making local products uncompetitive," she told Dawn.com. "The country is already ranked low in international competitive indexes and such decisions will further deteriorate the situation."

In Dr Pasha's opinion, with the increased cost of production, local products will lose their share in international markets at a time when the country needs to reduce its massive current account deficit.

"The government should have realised that the country needs to reduce the deficit by increasing exports and not by increasing the burden of loans," she said while questioning if the policymakers have done their homework. "They are not prepared. There is no evidence that they have a plan (to tackle the after-effects of the decision)." Dr Pasha said that the solution to the gas sector's problem lies in the management of distribution and recovery of dues, adding that the PTI govt is "making the same mistakes made by the previous elected government and the caretakers".

'PTI govt had to consider massive losses'
Senior analyst Farooq Moen feels that the PTI govt has little options but to consider the raise due to the "Rs30 billion losses the gas sector subsidies were causing to the national exchequer".

However, he also reminded that the final decision has yet to be taken as the increase has still only been proposed.

"The crux of the meeting was to take solid steps to bring an end to gas theft and recover dues," he said. "The proposed raise will be discussed in the ECC and the federal cabinet before being implemented."

'Negative impact on market'
JS Global Capital, one of Pakistan's largest brokerage and investment banking firm, also has a pessimist view on the issue, claiming in its report that the decision could have a negative impact on the market.

"The increase in gas prices ultimately adversely affects the cost of doing business and is a negative development for the market," the firm stated.

The report warned that an increase in gas tariff could be the precursor of another unpopular decision: increase in electricity tariffs.

'Gas companies would have collapsed without hike'
Senior business analyst Khaleeq Kiani, however, is of the opinion that the hike is justified. "One day, the gas companies will have to collapse if the government does not increase the tariff." "The prices had not been increased for several years due to decreasing petroleum prices," Kiani said, adding that "successive governments had ducked the issue".

He said that the government took the decision on the back of several triggers, including the growing deficit and back-to-back setbacks on arbitration forums.

 
   
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