Gas rates for industry hiked to meet IMF demand
• Govt notifies 9pc increase in gas rates for industrial captive power units
• Blocks Rs133bn relief in average gas rates for all other consumers
ISLAMABAD: To meet a “prior action” of the International Monetary Fund (IMF), the government on Sunday notified an increase of about 9 per cent in gas rates for industrial captive power units with effect from July 1 (today) but blocked about 15pc (Rs133 billion) relief in average gas rates accruing from lower international oil prices for all other consumers.
The decision was taken at a special meeting of the Economic Coordination Committee (ECC) presided over by Finance Minister Muhammad Aurangzeb to comply with the IMF’s prior action for a three-year loan programme.
The petroleum division said that in recent meetings held with the IMF mission, notification of the consumer gas prices on July 1 has been taken as a prior action, whereas phasing out captive power plants out of the gas grid by January 2025 has been taken as a structural benchmark.
Ironically, the Oil and Gas Regulatory Authority (Ogra), which had determined a Rs180 per unit reduction in prescribed gas prices for the fiscal year 2024-25 to meet gas companies’ requirements under the law, later asked the government to absorb a Rs132bn price cut to finance a part of circular debt instead of providing relief to consumers hit hard by inflation and new taxes.
The Oil and Gas Regulatory Authority has stated that “for the anticipated surplus revenues, they may include previous years’ shortfall to the extent of cushion available in the upcoming revenue requirement”, according to a summary to the ECC.
As a result, the ECC approved Rs250 per unit (9.1pc) increase in gas sale rate to captive plants of the general industry to Rs3,000 per million British thermal units (mmBtu) from the existing Rs2,750.
The consumer-end gas tariff for all other users would remain unchanged for the next six months, i.e. until Dec 31, 2024.
The petroleum division told the ECC that Ogra had determined estimated revenue requirements (ERR) for fiscal 2025 for both the Sui Northern Gas Pipelines Ltd and Sui Southern Gas Company Ltd, respectively.
Under this, SNGPL required Rs607bn revenue and SSGCL required Rs289bn. “The cumulative revenue requirements of both the Sui companies are Rs897bn for 2024-25,” it said.
On the other hand, at the current notified consumer gas sale prices effective since Feb 1, 2024, the estimated revenues of both Sui companies during 2024- 25 was put at Rs1.025 trillion (Rs364bn for SSGCL and Rs661bn for SNGPL).
This leads to a surplus of Rs133bn, including Rs75bn to SSGC and Rs58bn to SNGPL, based on no change in existing consumer gas prices.
The ECC was told that about 349 industrial units had captive power plants with 523 gas connections and had $13.31bn of exports to their title in the fiscal year 2021-22.
On an annual basis, at an existing tariff of Rs2,750 per mmBtu, the captive power plants created surplus gas revenue of Rs76bn, which would now increase to Rs92bn with a revised tariff of Rs3,000 mmBtu.
“However, pursuant to the commitment made with the IMF at the closure of captive power units by January 2025, there will be a shortfall in revenue requirements for January to June 2025 at Rs47bn,” the petroleum division said, adding that this shortfall would need to be recouped through a revision in gas rates in January next year.
According to the Pakistan Bureau of Statistics, in February this year, the government increased the gas tariff by up to 35pc, on top of an up to 1,100pc increase in November 2023. That increase included a 193pc hike in gas rates and a 3,900pc rise in fixed gas charges.
Published in Dawn, July 1st, 2024