In a major development for the power sector, the Senate passed on Thursday the Weighted Average Cost of Gas (WACOG) bill.
The development was announced by Federal Minister for Energy Hammad Azhar who said 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 development 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 a couple of months ago of Indicative Generation Capacity Expansion Plan (IGCEP) model for power purchase.
“Both historic reforms in power and petroleum sector have been carried out by PTI govt in the last six months,” he added.
Last month, Azhar in a press conference said that the government has evolved consensus on WACOG under which the average gas prices are estimated to go up by 30% gradually over the next few years.
“We are not going to increase these gas prices immediately but in a phased manner as the government expected the international LNG prices would come down in the coming month.”
“At present, local gas supply and LNG import have a 70:30 ratio. This would change to 50:50 in two years but the share of the LNG would increase to 80-90pc in a few years for which the WACOG was important,” Azhar said then.
Meanwhile, Tahir Abbas, Head of Research at Arif Habib Limited (AHL), has termed the latest development as “a right direction taken by the government”.
“Under the WACOG bill, all gas sources including RLNG and local gas will be pooled in and a weighted average cost will be taken for gas purchase,” Tahir said while speaking to Business Recorder.
“The bill comes as there is a massive disparity in RLNG and locally produced gas, which makes RLNG unfeasible for purchase, and needs to be sold at subsidised rate,” he said.
Elaborating on the weighted average price, the market expert said that “RLNG rate stands at $15 mmbtu and makes up 23% of the share, whereas the price of local gas comes at around $3 and its share stands at 77%, which adds up to a weighted average cost of $5.86”.
Tahir was of the view that with the latest move, gas prices are expected to increase both for residential and for industries, which would add to the cost of production.
Apart from WACOG bill, the Senate unanimously passed the Oil and Gas Regulatory Authority (Amendment) bill, 2022, the Oil and Gas Regulatory Authority (Second) Amendment Bill, 2022 and the Allied Health Professionals Council Bill, 2022.
These were moved by Minister of State for Parliamentary Affairs Ali Muhammad Khan.