ISLAMABAD: The government has called for a special meeting of the Economic Coordination Committee (ECC) on Monday (today) to discuss and approve a remarkable 3,900% increase in fixed monthly charges and a 194% rise in consumer rates for natural gas before seeking final dates for the second review of the ongoing IMF loan program.
The cabinet is set to ratify price adjustments on Tuesday, which are intended to be retroactively implemented from October 1. These adjustments are in addition to the petroleum division’s request to transition to a new gas pricing mechanism based on the weighted average cost of local and imported gas (WACOG). This shift is aimed at ensuring the actual cost of gas supply and eliminating the circular debt in the gas sector, which stood at Rs2.1 trillion as of June, according to a summary submitted to the ECC.
Notably, there are discrepancies in the reported figures. Caretaker Petroleum Minister Muhammad Ali, a former chairman of the corporate watchdog SECP, has publicly cited the gas sector’s circular debt at a higher Rs2.9 trillion.
The authorized summary submitted to the ECC also states that “delaying price adjustments until June 2024 will result in a revenue shortfall of Rs185 billion on natural gas” and anticipates an additional Rs210 billion during winter to redirect LNG to domestic consumers. This results in a combined increase of Rs395 billion for this fiscal year.
While a gas price increase with a specific deadline is not a performance benchmark for the upcoming IMF loan review, it has become inevitable due to the lender’s strict conditions that prohibit an increase in subsidies and require the circular debt to be reversed during the current fiscal year. Failing to meet these conditions could derail fiscal and primary account targets.
Although the petroleum division claims it is not seeking to raise gas rates for the “protected category” of domestic consumers, it has proposed a substantial increase of up to 3,900% in fixed monthly charges for these categories, raising them to Rs400 per month from the current Rs10.
Effectively, the average gas costs for these protected consumer slabs would also increase by up to 300% due to higher fixed charges, and their annual bills are estimated to rise by up to 150%.
For non-protected residential consumers, gas rates would increase by 50% to Rs300 per mmBtu for consumption of up to 0.25 hcm, 100% to Rs600 per mmBtu for 0.6 hcm, and 150% to Rs1,000 for up to 1 hcm. The most significant increase, 173%, would be for the 3 hcm slab, raising prices to Rs3,000 per mmBtu from Rs1,100.
The petroleum division argues that the tariff revision is intended to align with the cost of LPG to discourage excessive consumption and encourage those who can afford it to switch to alternative fuels.
The proposed tariff for bulk consumption would increase by 25% from the current Rs1,600 per mmBtu to Rs2,000, with no change in tariff for the special commercial (tandoor roti) category, which remains at Rs697 per mmBtu.
The tariff hike for commercial consumers is set to increase significantly, including over 136% for cement factories and CNG stations, to Rs4,400 and an 86% increase for export industries to Rs2,050 per mmBtu, and a 117% increase for non-export industries to Rs2,600.
