“Anticipated Gas Tariff Hike Likely to Impact High-End Consumers”
ISLAMABAD: The forthcoming increase in gas tariffs is likely to impact high-end consumers, as the caretaker government considers measures to shield low-end consumers from the impending price hike.
The International Monetary Fund (IMF) has linked the gas tariff increase to allowing power consumers to pay their bills in three-month installments. Consequently, the caretaker government has intensified its efforts to finalize proposals for natural gas price adjustments, with high-end consumers expected to bear the brunt of these changes.
Discussions with senior officials from the Petroleum Division indicate that there are 12 slabs for domestic gas consumers. The first four slabs, serving consumers using up to 0.25 HM3, 0.5 HM3, 0.6 HM3, and 0.9 HM3 of gas monthly, may not face any tariff increase. However, the remaining eight domestic gas categories, comprising non-protected consumers, are expected to experience an increase in tariffs. High-end consumers falling into the 4 HM3 slab may face a significant tariff increase, possibly reaching up to Rs3,600-3,700 per MMBTU. Similarly, consumers in the 3 HM3 and 4 HM3 categories will also likely encounter substantial price hikes. (HM3 signifies 100 cubic meters of gas.) These changes could affect approximately 60% of consumers, resulting in tariff increases of 200 to 400 per MMBTU, though the final decisions are yet to be confirmed.
The government currently imports RLNG (Re-Gasified Liquefied Natural Gas) at Rs3,700 per MMBTU but sells it at an average rate of Rs1,100 per MMBTU, a practice that is increasingly difficult to justify. The federal government previously notified category-wise gas sale price increases effective from January 1, 2023.
Key officials from the petroleum and finance divisions, along with the Oil and Gas Regulatory Authority (OGRA), are collaborating to finalize the gas price increases, aiming for a 45-50% increase while sparing protected domestic categories from tariff hikes.
The IMF’s approval is contingent on the government permitting unprotected electricity consumers who use up to 200 units a month to pay their higher bills in three-month installments.
On June 2, 2023, OGRA announced a 50% increase (Rs415.11 per MMBTU) for Sui Northern Gas Pipeline Limited (SNGPL) consumers and a 45% increase (Rs417.23 per MMBTU) for Sui Southern Gas Company Limited (SSGCL) consumers for the fiscal year 2023-24. Both companies have significant accumulated shortfalls, with SNGPL owing Rs560.378 billion and Sui Southern owing Rs97.388 billion, resulting in a combined shortfall of Rs657.766 billion.
Once the scenarios for gas price hikes for various consumer categories are finalized, they will be submitted for approval to the Economic Coordination Committee (ECC) and subsequently to the federal cabinet for notification.
The government aims to safeguard low-income consumers through safety nets, particularly in regions like Balochistan, where vulnerable populations are affected by harsh cold waves. While the government intends to provide special tariffs for low-income consumers in Balochistan, the financial implications, estimated at Rs 10 billion annually, pose significant challenges.
Efforts are also underway to increase gas production from depleting gas fields and stimulate oil and gas exploration and production activities by addressing the issues related to the crippling circular debt.
The government is exploring strategies to resolve the circular debt issue through reforms in the pricing structure and the dividends ploughing back scheme.