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Monday, July 15, 2024  
08 Muharram 1446  

Interim govt pushes up natural gas price ahead of IMF review

Rs384b gas subsidy to be given to protect common man’s interests, says energy minister Ali
Caretaker Energy Minister Muhamamd Ali, along with interim Information Minister Murtaza Solangi, addresses a press conference in Islamabad on October 31, 2023. Radio Pakistan
Caretaker Energy Minister Muhamamd Ali, along with interim Information Minister Murtaza Solangi, addresses a press conference in Islamabad on October 31, 2023. Radio Pakistan

The caretaker government announced on Tuesday a sharp increase in the price of natural gas for most households and industries ahead of the cash-strapped country’s first review of a $3 billion International Monetary Fund (IMF) bailout.

A fixed tariff for 57% of household consumers has been raised to Rs400 a month, from Rs10, interim Energy Minister Muhammad Ali told reporters in Islamabad.

Low- and middle-income households will be charged lower prices and high-income households would be charged more, he said.

New tariffs have also been introduced for industry, he said.

He said the tariff increase would generate nearly Rs400 billion, adding that the state-run gas sector would from now on face no losses.

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.

An IMF team is scheduled to arrive this week to review benchmarks set for the $3 billion stand-by arrangement it agreed in July.

But Ali also said that the government would provide around Rs384 billion worth of subsidy to gas consumers of different sectors including domestic, Tandoor (local bread makers), and fertilizer, aimed at lessening the inflationary impact on the common man.

He elaborated that Rs139 billion gas subsidy would be given to domestic consumers, Rs45 billion to the fertilizer sector, and Rs200 billion to Tandoors.

“The government has completely unchanged the sale price for gas supplies to Roti tandoors because ‘Roti’ is a prime and foremost necessity,” he said and added that it was ensured that the monthly bill of protected class does not exceed Rs900 on consumption of 0.9hm3 in a month.

He said the fertiliser prices were kept in line with the Mari gas field’s cost of gas which was Rs580 per mmbtu.

He said that the industry tariffs were set so as to rationalise the gas prices in the North and South regions and create a level playing field for everyone by offering gas at the same price to existing and new industries. The minister said that the Petroleum Division in consultation with stakeholders has developed a Regionally Competitive Energy Tariff (RCET) considering the industries in India, Bangladesh, and Vietnam, which have developed themselves and emerged as net exporters.

Ali added that measures were focused on the conservation of gas in sectors where gas use is inefficient, unbridled, or where alternate fuels are available.

“More than 50% of the commercial category consumers in the country already use LNG. More than 27% of the gas connections in the CNG category are RLNG-based. The efficiency adjusted cost of CNG is almost half of that with Petrol in equivalent terms,” he added.

The minister said that the pricing decision has been a “very difficult” one for the caretaker government but the decision had been taken in the “best interest” of the country.

“If the gas prices are not increased, the estimated revenues for Financial Year 23-24 would be Rs513 billion ie deficit of Rs191 billion from Estimated Revenue Requirement (ERR) Financial Year 23-24 on NG and deficit of Rs210 billion on RLNG, cumulatively Rs400 billion.”

He said that the deficit of the two gas companies had increased manifold over the last 10 years due to the difference of the purchase and sale price of gas.

The minister said that inadequate gas pricing in the previous governments and no financing for the imported gas diversion over the years dented the national exchequer and created a circular debt stock of Rs2.1 trillion (without interest).

He expressed the hope that the introduction of new gas prices would encourage more international companies to come into the exploration sector. He said that 57% of the domestic gas connections fall in the protected category where there is no increase in gas price. “It is still ensured that the monthly bill of a protected class does not exceed Rs.900 on a consumption of 0.9 hm3 in a month” he added.

For unprotected categories, Ali added that the tariff was increased on a progressive basis with higher income households paying the higher tariff. “This is to ensure that middle-income households are not burdened unnecessarily.”

The minister said the fixed rate for the 5.7 million gas consumers had been increased from Rs10 to Rs400, adding the new tariff would marginally affect the protected gas consumers. The minister further said the government has supported the middle and protected consumers.

“About 93 percent including 36 percent middle calls and 57 percent protected consumers will pay less price than the actual price of the gas” he added.

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