Gas price hike brings Sindh-Punjab energy cost disparity to the fore

The recent increase in gas prices has made manufacturing a costly affair for export-oriented producers, prompting Punjabi and Sindhi industrialists to engage in a spitting match.


Due to the recent increase in gas prices, Punjab-based industrialists are now paying almost three times as much as their counterparts in Sindh, causing a rift between them. The All Pakistan Textile Mills Association-North has requested the government to eliminate the differential petrol rates for industrial facilities focused on export in Punjab and Sindh in favor of a uniform price of $7 per million British thermal units (mmBtu).

The Petroleum Division notified the Economic Coordination Committee (ECC) of the federal cabinet that gas prices for residential and other categories of consumers should be revised. This would result in revenue of Rs. 310 billion as opposed to the Rs. 305 billion allotted for the six-month period (January to June 2023) in the revised estimated revenue requirements (RERR). After the hike, industrialists in Punjab are expected to pay $9 per mmBtu for petrol, about three times the price that industrialists in Sindh pay. Under the constitution, the province that is producing the gas gets priority when it comes to using it.

Although Sindh has the right to consume natural gas first because the majority of the country’s natural gas production takes place there, the concept of charging different rates will pit one group of industrialists against another and is detrimental to investment as it may deter manufacturers who are already having trouble obtaining vital raw materials due to import limitations because the country lacks funds to pay for containers standing at its ports.

Read more: ‘Energy Crisis Emergency’: Sindh limits market hours

Sui Southern Gas Company Ltd provides approximately 350 million cubic feet (mmcfd) of gas per day to industries and captive power plants, both for export and non-export. The cost advantage to the sector in the south is at least $575 million per year, given the $5 per mmBtu pricing difference between export-oriented facilities headquartered in Sindh and Punjab.

The Punjab sector loses market share to less expensive competitors both outside and within Pakistan when it depends too much on grid energy, which costs more than Rs40 per kWh. The industry in Punjab would face new problems as a result of the cost disparity and the end of regionally competitive prices. As a result, the Sindh-based industry will run on gas to the maximum while the Punjab-based industry, which accounts for more than half of Pakistan’s installed capacity, will cease to operate.

In addition to being inefficient and uncompetitive, grid energy is subpar and lowers effective production capacity by about 25%. Furthermore, the supply of gas to the export sector, even when it is accessible, in Punjab is severely constrained, at 25% of the required amount. The differential price rates are seen to be anti-competitive favoring the Sindh-based industry while the Punjab-based sector will suffer challenges such as unemployment, low exports, and bankruptcy.

Read more: Regionally Competitive Energy Tariffs: Policy Considerations

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