Gas price hike: A worrisome issue for household and industries

July 1, 2019 (MLN): Petroleum Division has increased gas prices by 31% for industrial and average 68% for domestic consumers with effect from July 1, 2019. Not surprisingly, this move has created an unrest among domestic gas consumers who were already in dire straits due to excessive billing.

As a result, public anguish is on the rise since household sector has already been struggling with the rupee depreciation, higher electricity bills and fuel prices. The current hike will make these households more vulnerable.

On the other hand, the recent rise in gas price would allow government to recover an incremental amount of Rs165bn out of which Rs114bn will be used to recover revenue requirement of SNGPL and SSGC while the remaining amount will be used for circular debt, says a research report by Foundation Securities.

It further adds that “increase in domestic consumer gas prices would have an inflationary impact of approx. 0.7% with major sectors to be affected are fertilizer & chemical along with the reduction of 34bps in fiscal deficit.”

As per the report, the other impacts of the gas price hike include:

• It would improve cash flows of both E&P and gas distribution companies. Subsequently helps to expedite oil & gas exploration activities and enhance gas distribution network.
• Fertilizer sector is expected to fully pass on the impact by raising Urea prices.
• In case of steel sector, as FSL steel universe, ISL and MUGHAL (partially) rely on captive power plant to meet their energy requirement, given the economic slowdown, ISL and MUGHAL would have to take a dent of Rs0.2/sh and Rs0.4/sh respectively.
• The gas prices for the textile sector by Rs186/mmbtu is immaterial for Punjab based textile players as they are receiving RLNG while south based players have to absorb the hike.
• Due to increase in gas prices for Cement captive plants by Rs241/mmbtu, cement players are expected to absorb (~Rs4-7/bag) gas price hike given emerging competition due to capacity additions and economic slowdown.

Having these impacts, the rise in gas prices will not only affect the household sector but also the industrial sector as Cement, Steel and chemical will have to absorb the hike in gas prices, however, as the report suggests it’s a mix bag for textile as Punjab based players are operating on RLNG.

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