Gas rate hike imminent, but low-income consumers may find relief

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The forthcoming increase in gas tariffs is likely to impact high-end consumers the most, as the caretaker government contemplates measures to shield low-income consumers from the anticipated price surge.

According to reports, the International Monetary Fund (IMF) has linked the gas tariff hike to a condition allowing power consumers to pay their bills in three-month installments. As a result, the caretaker government is intensifying efforts to finalize proposals for natural gas price adjustments, with high-end consumers expected to bear the brunt of the increase.

Background discussions with senior officials of the Petroleum Division reveal that there are 12 slabs for domestic consumers. The first four slabs, covering consumers using up to 0.9 HM3 of gas per month, may not face any increase. However, the remaining eight domestic gas categories, consisting of non-protected consumers, are set to experience the price hike. High-end consumers falling into the 4 HM3 slab and above may see a substantial increase in their tariffs, potentially reaching up to Rs3,600-3,700 per MMBTU. Similarly, consumers in the 3 HM3 and 4 HM3 categories will also face significant increases. (HM3 represents 100 cubic meters of gas).

This adjustment could affect approximately 60% of consumers, resulting in price hikes ranging from 200 to 400 per MMBTU, though these details are subject to finalization.

The government’s practice of importing Regasified Liquefied Natural Gas (RLNG) at Rs3,700 per MMBTU but selling it at an average of Rs1,100 per MMBTU is no longer considered justifiable.

Previously, the federal government had notified gas sale price increases by category effective from January 1, 2023.

Top officials from the petroleum and finance divisions, along with the Oil and Gas Regulatory Authority (OGRA), are collaborating to finalize a gas price increase scenario of 45-50% without affecting gas prices for protected domestic categories.

The IMF has intensified its pressure on the caretaker government to implement the gas price hike, which OGRA determined for Sui Southern and Sui Northern consumers on June 2, 2023.

On that date, Ogra announced a 50% increase (Rs415.11 per MMBTU) for consumers of the Sui Northern Gas Pipeline Limited (SNGPL), raising the subscribed gas price to Rs1,238.68 per MMBTU. The regulator also increased gas prices by 45% (Rs417.23 per MMBTU) for consumers of the Sui Southern Gas Company Limited (SSGCL) for the 2023-24 period. SNGPL still has an accumulative shortfall of Rs560.378 billion up to FY23, while Sui Southern has a shortfall of Rs97.388 billion, resulting in a total shortfall of Rs657.766 billion for both gas companies.

Once the price hike scenarios for various gas consumer categories are finalized, they will be presented to the Economic Coordination Committee (ECC) for approval, and subsequent approval from the federal cabinet will be sought before notification.

The government is considering safety nets to protect low-income consumers, particularly in Balochistan, where the cold wave makes them more vulnerable. However, implementing a special tariff for Balochistan’s low-income consumers may pose financial challenges.

The government aims to ensure that low-income consumers are spared from the shock of gas price increases, especially in remote areas where costly gas cylinders are often the only option. In contrast, urban centers with piped gas connections typically pay lower prices.

Additionally, the government is working on multiple fronts to enhance gas production from depleting gas fields, boost oil and gas exploration and production activities, and address the circular debt that has impeded these efforts. Reforms in the price regime and a dividends ploughing back scheme are among the strategies being considered to tackle the circular debt issue.


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