By Staff Reporter
ISLAMABAD: The government on Monday approved a steep hike in natural gas prices and fixed monthly charges for consumers, as it faces pressure from the International Monetary Fund (IMF) to reduce subsidies and reverse the mounting circular debt in the energy sector.
The Economic Coordination Committee (ECC) of the Cabinet, chaired by the caretaker Finance Minister, Dr. Shamshad Akhtar, agreed to raise the gas tariff by up to 173 percent for non-protected domestic consumers, 136.4 percent for commercial users, 86.4 percent for exporters, and 117 percent for the non-export industry, effective from November 1, 2023.
The ECC also revised the fixed monthly charges for the protected consumers, who use less than 50 cubic meters of gas per month, from Rs10 to Rs400, and for non-protected consumers from Rs460 to Rs1000 and up to Rs2000 for higher slabs.
The decision came ahead of the final dates for the second review of the ongoing IMF loan programme, which has set strict conditions for no increase in the subsidy and a reversal of the circular debt during the current fiscal year.
The circular debt in the gas sector, which is the difference between the cost of supply and the revenue collected from consumers, stood at Rs2.1 trillion as of June 2023, according to the petroleum division. However, the caretaker Petroleum Minister Muhammad Ali, a former chairman of the corporate watchdog SECP, has cited a higher figure of Rs2.9 trillion.
The petroleum division has also requested to shift towards a new gas pricing mechanism on the pattern of the weighted average cost of local and imported gas (WACOG) to ensure the actual cost of gas supply and eradicate the flow of the gas sector’s circular debt.
The latest increases in the prices of gas and oil are in effect slashing costly government subsidies. The IMF has been urging the government to do more to balance its books, and its team is likely to start a second review of the loan programmer next month.
The government says the gas price increase will help ease the deficit of the state-owned natural gas suppliers Sui Northern and Sui Southern, both bleeding cash and subsidising consumers and industries.
Such price rises, though, are politically sensitive in Pakistan, which has enjoyed decades of cheap gas from its own deposits.
However, over the past decade, those reserves have not been enough, and Pakistan experienced a number of shortages until it began importing liquefied natural gas (LNG), which is more expensive than domestic gas.
The ECC also approved the import of 200,000 metric tonnes of urea fertiliser for the winter crop season and “directed that an uninterrupted supply of gas for the fertiliser industry be ensured”. It also asked the provinces to act more proactively to bear the importation cost.
In addition, the ECC approved “the cost-efficient import of one million tonnes of milling wheat for the year 2023-24 through TCP through an open tendering process, to maintain the strategic reserves”.
It also encouraged “the private sector to import specified milling wheat under the Ministry of Finance notification of 14th November 2008, while meeting the criteria envisaged in the Import Policy Order, 2022”. The ECC also directed the ministry to conduct a third-party verification of the wheat stock in the country.
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