By Staff Reporter
ISLAMABAD: The government on Monday raised the natural gas tariff by up to 172 percent for various sectors, including domestic, industrial, and commercial consumers, to comply with the International Monetary Fund’s (IMF) demand to reduce the gas sector’s circular debt.
Pakistan is bracing for the upcoming first review of the $3 billion short-term financing facility it availed from the IMF to stave off a looming default in July this year. The Fund’s team is expected to visit Pakistan in November to assess its economic performance and compliance with the agreed reforms.
The new prices will be effective from Nov. 1, 2023, according to a notification issued by the Ministry of Energy after a cabinet meeting. This is the second time in 2023 that the government has increased the gas tariff, following a 112 percent hike in January.
The gas tariff for non-protected domestic consumers would increase by up to 173%, commercial by 136%, export industry by 86%, non-export industry by 117%, fertilizer by 14%, and CNG by 144%, according to the summary.
There will be no increase in tariff for the protected category (57% of the domestic consumers) however, the fixed monthly charge is proposed to be increased from Rs10 to Rs400 for this category. The new gas tariff will be implemented from November 2023, instead of October 2023.
The government viewed that increase as necessary due to the drastic devaluation of the rupee against the dollar, inflation, and rising costs of gas exploration, production, distribution, and transmission.
It also blamed the successive previous governments for retaining control of pricing a scarce commodity instead of strengthening the regulator and creating strong internal controls in the system for transparency and efficiency.
“Inadequate gas pricing in the previous governments and no financing for the imported gas diversion over the years dented the national exchequer and created a circular debt stock of Rs2.1 trillion (without interest),” it said.
Analysts said some of the most profitable businesses in the country were availing the cheapest natural gas, depriving the lowest income class and small-scale industries.
“The pricing decision has been a very difficult one for the caretaker government. The affordability objective had major clash with the sustainability argument of the supply chain,” an analyst said.
The move is likely to impact millions of people across Pakistan, which has faced a number of energy-related issues in recent years.
The average gas price is expected to go up by 53% to Rs1,397/MMBtu from Rs914/MMBtu, said brokerage Arif Habib Limited (AHL).
“The revenue impact of the proposed price hike would be Rs57 billion,” AHL said. “As per the estimates the revenue requirement of Sui Southern Gas company (SSGC) and Sui Northern Gas Pipeline (SNGPL) is Rs697 billion, while [their] annual revenue would be Rs755 billion with the tariff hike.”
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