In mid-February, the government is considering a significant increase in gas prices, potentially up to 41 percent, as part of efforts to address concerns raised by the International Monetary Fund (IMF). This move, if implemented, would mark the second increase in fuel prices since November 2023. The IMF argues that adjusting gas prices is crucial to tackling the growing circular debt issue.
According to analysts at Optimus Capital Management, SNGPL may raise rates by 41 percent to an average of Rs. 1,753 per unit, while SSGC is expected to increase gas prices by 15 percent to an average of Rs. 1,696 per unit.
These adjustments aim to address income shortfalls faced by gas distribution companies. The proposed price hike may vary across consumer sectors, including domestic, commercial, and industrial, as the government currently subsidizes gas for home users and fertilizer manufacturers.
The IMF’s recommendations include eliminating cross-subsidies, establishing a unified price regime for all consumers, implementing semi-annual gas tariff adjustments, phasing out captive power usage, setting uniform rates for export and non-export sectors, introducing a quarterly gas circular debt flow reporting system, and finalizing a circular debt management plan (CDMP).
Although the November gas tariff increase is expected to contribute to headline inflation, gradual declines are anticipated due to lower core inflation and recent changes in commodity prices. Year-end inflation is projected to be 18.5 percent and 9 percent in FY24 and FY25, respectively.
Pakistan informed the IMF that the circular debt in the gas sector has significantly risen to an estimated Rs. 2,084 billion (2.5 percent of GDP) by the end of FY23, approaching that of the power sector.
The government has committed to regular semi-annual gas tariff adjustments, including the timely implementation of OGRA’s December 2023 determination by February 15, 2024. Additionally, promises were made to phase out captive power usage, create a fairer playing field for non-household consumers, and formalize a plan to reduce circular debt stock.