KARACHI: Pakistan’s caretaker government has given a go-ahead for a substantial rise in the gas tariff to meet a key condition of the International Monetary Fund (IMF) ahead of the first review of a $3 billion bailout facility, financial experts said on Tuesday.
The hike in gas tariffs was approved by the Economic Coordination Committee (ECC) of the federal cabinet that was chaired by Caretaker Finance Minister Dr. Shamshad Akhtar on Monday.
The move is likely to impact millions of people across Pakistan, which has faced a number of energy-related issues in recent years.
“A summary submitted by the Ministry of Energy (Petroleum Division) regarding the revision of the natural gas sale pricing for the FY 2023-24, was also considered by the forum,” said an official statement circulated after the meeting.
The gas tariff for non-protected domestic consumers would increase by up to 173 percent, commercial by 136 percent, export industry by 86 percent, non-export industry by 117 percent, fertilizer by 14 percent, and CNG by 144 percent, according to the summary.
There will be no increase in tariff for the protected category (57 percent 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 recommendation will now be presented before the federal cabinet for final approval, after which the Oil and Gas Regulatory Authority (OGRA) will issue a notification regarding the revision of the tariff, an OGRA spokesman told Arab News on Tuesday.
After the approval, the average gas price is expected to go up by 53 percent to Rs1,397/MMBtu from Rs914/MMBtu, according to a report by Arif Habib Limited (AHL), a Pakistani securities brokerage, investment banking and research firm.
“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.”
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 the South Asian country for the review by the end of this month.
The IMF has frequently raised concerns over the country’s mounting circular debt in the energy sector, asking the government not to give any subsidies while calling for raised tariffs.
“It was one of the key conditions of the IMF which the government has met,” Tahir Abbas, head of research at AHL told Arab News. “With this last major hurdle removed, we expect that the review of the $3 billion program will be smoothly completed. The government has already achieved other major targets.”
Pakistan has faced a number of energy woes in recent years, including frequent gas shortages in the winter season. The problem not only creates hardships for domestic consumers but also affects local industries by bringing down their production levels.
It is pertinent to mention here that Pakistan’s oil and gas reserves have been fast depleting and are likely to be fully consumed in the next 15 years, according to the Pakistan Petroleum Information Services.
The country has not made any major new discovery of oil and gas reserves and the government has been looking for cheaper sources of energy imports to meet the growing demand.
