KARACHI: The caretaker government of Pakistan is expected to give the final nod to raise gas tariffs, one of several difficult steps Islamabad has had to take to meet the International Monetary Fund (IMF)’s fiscal tightening conditions, which Pakistani experts said on Thursday would be “painful for the people.”
The lender has pointed out that liquidity conditions in the power sector were acute, with a buildup of arrears and frequent power outages. The arrears — a form of public debt that builds up due to subsidies and unpaid bills — were a major issue in the eight months of negotiations between the IMF and Islamabad before a deal was reached last year for a $3 billion bailout package.
The Economic Coordination Committee (ECC) of the Pakistani cabinet on Wednesday considered a summary by the Petroleum Division on natural gas sale pricing and decided on a revision in prices as per the revenue requirements of gas supply companies, according to the finance ministry.
The estimated revenue requirements of Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGC) are about Rs592 billion ($2.12 billion) and Rs310 billion ($1.11 billion) respectively, according to the Petroleum Division.
The final approval for the gas tariff hike, which will be the second one by the caretaker government which took over last August, is expected days ahead of the formation of a new government after general elections on Feb. 8.
Pakistani financial experts estimate that the natural gas tariff would be as high as 67 percent for some consumer categories, based on the oil and gas sector regulator’s determination.
“The weighted average impact of the gas price hike would be 11 percent while the rate would be 67 percent for some categories of consumers,” Tahir Abbas, head of research at Arif Habib Limited, told Arab News.
“Determination of revenue requirements of Sui companies has been made one of the benchmarks by the IMF to judge a country’s performance.”
Pakistan last year announced a sharp increase in the price of natural gas for most households and industry ahead of the cash-strapped country’s first review of the $3 billion IMF bailout. Energy sector debt has been the main issue that the IMF has highlighted in tackling the fiscal deficit and it has been recommending measures to deal with it.
A fixed tariff for 57 percent of household consumers had been raised to 400 rupees ($1.42) a month, from 10 rupees, the energy minister of a caretaker government, Muhammad Ali, told reporters in Islamabad on Oct. 31, while low- and middle-income households would be charged lower prices and high-income households would be charged more. New tariffs were also introduced for industry.
The tariff increase, the government said at the time, would generate nearly 400 billion rupees ($1.42 billion), and would help the state-run gas sector be free of losses.
“The overall direct impact of the [new] gas price hike on inflation would be about 0.4 percent because of its weightage in the Consumer Price Index basket,” Abbas at Arif Habib said.
Dr. Khaqan Najeeb, a former adviser to the finance ministry, said it was “necessary” for Pakistan to review gas prices because of the IMF.
“This is a commitment that has been made by the Pakistan government with the IMF and appears as a structural benchmark in the Memorandum of Economic and Financial Policies,” Najeeb told Arab News. “However it is painful for the people and not so helpful for growing Pakistan’s manufacturing sector.”
He said the gas price hike was a requirement to avail the second and last tranche of the current IMF bailout. Pakistan has so far received about $1.9 billion from the program while the remaining funds would be disbursed after the completion of the program in March 2024.
“The gas price revisions indicate the need that Pakistan’s sustainability of gas, petroleum and power sector hinges upon the ability of the incoming government to undertake structural transformation, massive reforms of deregulation, getting the tariff structure right, divestment of the key entities in this sector, and trying to bring private sector efficiency along with vertically integrating the two regulators,” Najeeb said.
Pakistan’s inflation rate surged to a historic high of 38 percent in May 2023 and was at 28.3 percent in January 2024. Pakistan’s central bank has also revised its inflation forecast upwards from 20-22 percent to 23-25 percent for the current fiscal year due to a hike in energy prices.
Pakistani industrialists say domestic gas rates for industry have been increased by over 250 percent since last year.
“Uncompetitive energy tariffs are hindering export growth and foreign and domestic investment in the export sector,” Shahid Sattar, Secretary General of All Pakistan Textile Mills Association (APTMA), said in statement on Wednesday, adding that Pakistan was losing its market share in the international market as its export capacity of $600 million per month was not being utilized.