Senate Passes Weighted Average Cost of Gas Bill

The Senate on Thursday approved the Weighted Average Cost of Gas (WACOG) Bill which will accelerate the prices of gas for domestic and industrial consumers in near future.

Under the WACOG bill, all gas sources including Regasified Liquefied Natural Gas (RLNG) and local gas will be pooled in and a weighted average cost will be taken for gas purchase.

Minister for Energy Hammad Azhar said that the bill is a “historic reform”, which will ensure Pakistan’s energy security.

“WACOG bill has been passed today by Senate as well. It is a historic and long-pending reform that will ensure the energy security of Pakistan,” said Azhar in a tweet.

The federal minister was of the view that the bill would allow the government to embark upon the reform of the “gas pricing structure, remove anomalies and enhance supplies of imported gas”.

Azhar said that the reform is as significant as the approval of the Indicative Generation Capacity Expansion Plan (IGCEP) model for power purchase.

“Both historic reforms in the power and petroleum sector have been carried out by the PTI government in the last six months,” he added.

The bill comes as there is a massive disparity in the prices of RLNG and locally produced gas, which makes RLNG unfeasible for purchase, and needs to be sold at a subsidized rate.

Some experts believe that the average gas prices are estimated to go up by 30 percent gradually over the next few years in the country.

A senior official said that the government has no plan to increase the gas prices immediately but in a phased manner.

RLNG rate stands at $15 mmbtu and makes up 23 percent of the share, whereas the price of local gas comes at around $3 and its share stands at 77 percent, which adds up to a weighted average cost of $5.86.

After the WACOG bill, this ratio would change to 50:50 in two years but the share of the Liquified Natural Gas (LNG) would increase to 80-90 percent in a few years for which the WACOG was important.

At present, the imported cost of LNG is about Rs. 8 billion per cargo against which, the gas companies could recover only Rs. 1 billion from residential consumers. The gas companies have already faced about Rs. 100 billion loss in the last three months on this account. On the other hand, the government cannot divert more LNG to the residential consumers, otherwise, the gas companies would go bankrupt.

The total local gas allocation at present was about 4,000 million cubic feet per day (mmcfd) but this was down to 3500 mmcfd because of about 9 percent annual depletion of local gas fields

On the other hand, gas demand in the domestic sector goes up by five times to about 2000 mmcfd in winter, leaving just 1500 mmcfd to other sectors.

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