- Web Desk
- 4 Hours ago
Govt plans massive increase in gas prices, 41% hike expected
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- Web Desk
- Jan 24, 2024
- If implemented, this would bring the average price to Rs 1,753 per unit for SNGPL and Rs 1,696 per unit for SSGC.
KARACHI: In a move to meet the conditions of the International Monetary Fund’s (IMF) $3 billion loan programme, the government is gearing up for another substantial hike in gas prices, estimated to reach up to 41 per cent by mid-February. This decision, aimed at tackling the escalating circular debt, could lead to a fresh wave of inflation in an already price-sensitive market.
The IMF contends that raising gas prices is crucial to address the mounting circular debt, said a news report by Express Tribune on Wednesday. If implemented, this would mark the second fuel price increase within three months, following the adjustment in November 2023.
According to IMF data, the circular debt in the gas sector soared to Rs 2.1 trillion, equivalent to 2.5 per cent of GDP, by the end of FY23, witnessing a significant 28 per cent YoY increase.
IMF urges Pakistan to implement gas tariff hike
Estimates provided by the analysts indicate that state-owned gas distribution companies, including Sui Northern Gas Pipeline Limited (SNGPL) and Sui Southern Gas Company (SSGC), might raise gas prices by 41 per cent and 15 per cent, respectively. If realised, this would bring the average price to Rs 1,753 per unit for SNGPL and Rs 1,696 per unit for SSGC.
The anticipated hikes are expected to address revenue shortfalls faced by these companies, with SNGPL and SSGC aiming to generate additional revenue through tariff hikes on locally produced and imported RLNG (re-gasified liquefied natural gas).
The potential gas price increase may vary across consumer sectors, impacting domestic, commercial, and industrial users differently due to existing subsidy structures. The IMF recommends a uniform gas price for most consumers, advocating for the removal of cross-subsidy formulas.
In response to the impending surge, the government is set to disburse Rs 310 billion to government-owned power plants and independent power producers to alleviate circular debt in FY24. This injection of funds is expected to improve the cash flows of gas distribution companies and facilitate infrastructure investments to reduce losses.
SNGPL intensifies crackdown on gas theft
The analysts highlight the positive impact of timely gas price revisions on entities like Pakistan State Oil (PSO) and Oil and Gas Development Company Limited (OGDCL), improving liquidity and aiding in the settlement of outstanding amounts.
With the power circular debt standing at Rs 2.5 trillion by September 2023, the updated circular debt management plan (CDMP) for FY24 aims to prevent further accumulation and prioritizes reforms such as price rationalisation, private sector management of DISCOs, reduction of capacity payments, and the expansion of renewable energy capacity.