ECC approves gas price hike for captive power industry to meet IMF condition

ISLAMABAD: The Economic Coordination Committee (ECC) has approved an increase in natural gas prices for the captive power industry, effective from July 1, 2024, to meet the International Monetary Fund (IMF) conditions for a new programme.

The Petroleum Division presented the gas pricing summary at the ECC meeting, chaired by the Finance Minister on Sunday. The Oil and Gas Regulatory Authority (OGRA) had determined the estimated revenue requirements for FY 2024-25, with SNGPL needing Rs607 billion and SSGCL requiring Rs289 billion, totaling Rs897 billion.

The federal government is required to advise OGRA on revising category-wise consumer gas prices within 40 days of the determination to ensure the revised tariffs are effective from July 1, 2024. The amended OGRA Ordinance mandates that the consumer gas sale prices meet the revenue requirements determined by the Authority.

At the current notified consumer gas prices effective from February 1, 2024, the estimated revenues for both Sui companies during FY 2024-25 will be Rs1,025 billion, leading to a surplus of Rs133 billion.

Also read: IMF demands further hike in electricity, gas prices

In recent IMF negotiations, adjusting gas prices by July 1, 2024, and phasing out captive power plants by January 2025 were set as key conditions. The captive power industry, significant consumers of gas and RLNG, provides additional revenues for cross-subsidization in the domestic sector.

The IMF memorandum includes plans to align captive power plants’ indigenous gas tariffs with RLNG tariffs. Currently, captive power plants are provided different blend proportions of indigenous gas and RLNG on SSGCL and SNGPL networks, translating into tariffs of Rs3,000/MMBtu for SSGCL and Rs3,300/MMBtu for SNGPL, compared to the RLNG tariff of Rs3,550/MMBtu.

To meet IMF commitments, the Petroleum Division proposed raising the gas tariff for the captive power industry from Rs2,750/MMBtu to Rs3,000/MMBtu, generating an estimated surplus revenue of Rs. 92 billion annually. However, the phasing out of captive power units by January 2025 is expected to create a shortfall of Rs47 billion, necessitating further price revisions from January 1, 2025.

The ECC approved the proposed gas price hike, ensuring that the current blend of indigenous and RLNG continues to be offered to captive power units.