In a move that could reshape the energy landscape of the nation, the government is now seriously considering the implementation of a system-wide WACOG (Weighted Average Cost of Gas). This initiative aims to address the inefficiencies and distortions plaguing the current gas pricing system, which have led to a staggering circular debt of approximately Rs 3 trillion.

With a high-powered committee formed by the Prime Minister’s office tasked to explore the feasibility of WACOG within a tight deadline of 07 days, the stage is set for potential transformative change. The Terms of Reference (TORs) set for this committee underscore the urgency of studying WACOG’s impact on various sectors, including its potential to alleviate circular debt, reduce electricity and fertilizer prices, and enhance overall economic stability.

In the following paragraphs an attempt has been made to review the TORs and provide a perspective on each one of them with some ideas as a way forward. It is pertinent to mention that the GoP had resorted to the import of LNG in view of gradual but consistent decline in the local gas production and increased demand from all segments of gas consumers in the country. Although the expensive LNG was imported for exclusive consumption in the power sector with its price ring-fenced, lately it has been diverted to other consumers.

It is important to note that LNG is being imported into the country at a steep price of Rs 3700/MMBTU as compared to Average Domestic Sale Price of Rs 1,100. Even the Average Prescribed Price determined by Ogra (oil and gas regulatory authority) is Rs 1,673/MMBTU.

Tariff-related shortfall alone due to delayed revision in Sale price since FY2022-23 is Rs. 423 billion for which no recovery mechanism has been devised as yet. The shortfall in LNG business is Rs. 284 billion upto FY 2022-23, which is also pending recovery.

The current year projected shortfall is likely to exceed Rs. 70 billion despite increase in the Sale Prices by the GOP primarily because of late revision in sale prices from November 2023 instead of July 2023. Hence the total shortfall........

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