Gas price surge aims to tackle circular debt: minister

ISLAMABAD: Caretaker Energy Minister Muhammad Ali has outlined the significance of the recent surge in gas prices as a potential solution to the growing circular debt within the gas sector, which has reached an alarming Rs2,100 billion.

Acording to Dawn.com, he offered a grim assessment for the upcoming winter, cautioning that gas supply would be restricted to just eight hours a day.

In a media briefing, Ali addressed the current circular debt encompassing the entire energy sector, which stands at Rs4,500 billion, excluding interest payments. This figure includes Rs2,300 billion associated with the electricity sector.

He highlighted the government’s commitment to preventing any resurgence of circular debt in the gas sector following the recent increase in gas prices, while also working to avoid further debt accumulation in the power sector as part of their agreement with the International Monetary Fund.

Regarding the recent gas price hike, the caretaker minister disclosed that there had been no adjustments during the first half of the previous fiscal year (July to December 2022).

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He noted that price increases occurred in the second half of the year (January to June) but fell short of covering the necessary supply of re-gasified liquefied natural gas (RLNG) diverted to domestic consumers during the winter season.

Elaborating on the impending gas supply scenario, Ali indicated that consumers should prepare for a limited gas supply of just eight hours daily despite the price increases. Given the imminent gas shortfall, he advised consumers to consider transitioning to liquefied petroleum gas (LPG) and mentioned that piped gas supply would be available during morning, afternoon, and evening intervals.

Furthermore,  Ali confirmed the continuation of a ban on new gas connections, citing a lack of surplus gas for new consumers. To mitigate the upcoming winter gas crisis, the government has organised the procurement of two liquefied natural gas (LNG) cargoes for December and plans to secure two more for January.

He recalled that gas prices were last raised in January 2023, marking the first price hike in two and a half years. This gradual approach to price adjustments led to the addition of Rs461 billion in circular debt in the previous fiscal year.

The minister expressed concerns about the stability of the gas sector, citing the departure of exploration and production (E&P) companies due to financial risks. Additionally, he highlighted how federal government fiscal constraints have hindered exploration activities and even gas imports, worsening the situation.

Ali noted that piped gas coverage benefits only 30 per cent of the nation’s households, with the majority in urban areas relying on LPG, while rural areas use biomass, wood, and cow dung for their energy needs.

He also pointed out that approximately 57 per cent of domestic gas connections fall into the protected category, preventing any increase in gas prices. Nevertheless, these consumers utilise 31 per cent of the total gas supplied in the country.

The reports indicate that the minister said that it is not economically viable to provide a scarce natural resource like gas at heavily subsidised prices when the monthly bill for the protected class does not exceed Rs900.

He defended the increase in fixed gas charges, assuring that the maximum bill for protected consumers would not surpass Rs1,300 per month, even after the government raised fixed charges from Rs10 to Rs400.

He also clarified that the government had refrained from raising gas prices for tandoors, traditional clay ovens used for baking, as roti (flatbread) is considered a necessity. Lastly, the minister highlighted the rationalised industry tariffs, revealing that industries in Punjab were charged at the full RLNG cost, approximately $12.5 per million British thermal units (mmBtu), whereas those in Sindh paid nearly one-third of that cost.