Govt gives in to IMF, more than doubles gas tariff

Approves increase of up to 113% in natural gas prices

ISLAMABAD:

The government on Monday approved an increase up to 113% in the natural gas prices to recover Rs310 billion from the majority of consumers in six months, putting a minimum of Rs736 billion additional burden on the citizens in the form of taxes and energy cost to revive the International Monetary Fund (IMF) programme.

Although the government started implementing one after another condition of the IMF to revive the programme, it had not yet shown willingness to reduce the cabinet size and impose taxes on traders as well as the stock market.

The decision was taken by the Economic Coordination Committee of the Cabinet (ECC) that passed on the maximum burden of 113% on to those domestic consumers who had monthly consumption of above four cubic metres.

The prices for the domestic consumers had been increased in the range of 8.5% to 113% besides “optimising” the previous slab benefit.

For the bulk, commercial, power producers, fertiliser plants, cement, exporters, general industry and CNG stations, the gas prices had been increased from 10.4% to 105%, the details showed.

The increase was needed to stop both the gas supplying companies from bankruptcy, which had already sustained Rs577 billion revenue shortfall since 2013.

The Petroleum Division tabled a summary on Natural Gas Sale Pricing FY 2022-23 and presented tariff proposals for all categories of consumers in accordance with the Revised Estimated Revenue Requirements (RERR) for fiscal year 2022-23, according to the Ministry of Finance.

“The ECC after a detailed discussion approved a gas price revision proposal for domestic, commercial and power sectors for six months – January to June 2023,” according to the statement.

With the fresh approval, the government had so far met two prior actions of increasing the electricity and gas prices, which were set by the IMF along with other conditions, for reaching a staff-level agreement.

The details showed that the gas consumers would pay extra Rs310 billion in just six months.

The government had already increased the electricity prices by Rs3.30 to Rs15.52 per unit to recover Rs237 billion more till June. Another burden of Rs189 billion would be passed on in the shape of increase in taxes by June 2023.

Cumulatively, these three measures would force the people to cough up an extra Rs736 billion in just six months –a cost that had been increased due to the government’s failure to timely revive the IMF programme.

Finance Minister Ishaq Dar started conceding to one after another condition, including letting the rupee gain its market price, which was now almost Rs100 to a dollar above the threshold where Dar wanted to see it four months ago.

The government on Monday exchanged its fresh position on the first draft of the Memorandum for Economic and Financial Policies (MEFP) with the IMF team.

The government introduced a new category of protected consumers whose rates were lower than the non-protected ones.

In addition to paying the normal gas usage rates, the protected consumers would also pay a fixed Rs50 per month charge.

The non-protected consumers would pay Rs500 fixed monthly charge, excluding the meter rent.

The decision would take effect from Jan 1, subject to the endorsement by the federal cabinet.

The ECC approved an increase in the gas prices for domestic consumers using up to 0.5 cubic metres per month of gas to Rs150 per MMBTU – an increase of 24%. Their existing rate was Rs121. For consumers using up to 1.5 cubic metres of gas, the prices had been increased to Rs600 per MMBTU –a surge of 8.5%.

The gas rates for domestic consumers of two cubic metres per month had been increased to Rs800 per MMBTU – an increase of Rs247 or 45%.

The consumers of up to three cubic metres of gas would now pay Rs1,100 per MMBTU price, which was higher by Rs362 or 49% over the existing prices. The existing rate for this category was Rs738 per MMBTU.

However, a major burden had been passed on to consumers using above three cubic metres of gas a month. As against the Rs1,107 existing rate, the consumers of up to four cubic metres of gas would pay Rs2,000 per MMBTU –a surge of Rs893 or 81%.

The consumers of above four cubic metres of gas would now pay Rs3,100 as against Rs1,460 – an increase of Rs1,640 or 113%.

The bulk consumers would be charged at the average prescribed price of Rs1,600 per MMBTU –up by Rs820 or 105%.

The Petroleum Division said that the gas sector’s circular debt, which was Rs299 billion in June 2018, had increased to Rs1.642 trillion in June 2022. The domestic sector consumed 47% of indigenous gas and only 27% of the population got piped gas.

The ECC approved to sell gas to tandoors at Rs697 per MMBTU with no change. The commercial gas connection prices had been increased by 29% to Rs1,650 per MMBTU.

The power plants of K-Electric, Sindh Nooriabad Power and Engro Powergen would be charged at Rs1,050 –higher by Rs193 or 22.5%. The liberty power would be charged at Rs2,406 per MMBTU – up by Rs1,225 or 104%.

The export-related processing consumers of general industry had been charged at Rs1,100 per MMBTU – up by 34%.

The export-related captive power plants had been charged at Rs1,100 per unit –higher by Rs248 or 29%.

The general industry would now pay Rs1,200 – an increase of 10.4% to 14%.

The gas prices for the cement plants had been increased to Rs1,500 –a surge of Rs223 or 17.5%. That for the CNG sector had been approved at Rs1,805 per MMBTU, showing an increase of 32% or Rs434.

The Engro Fertilizer would pay Rs140 per MMBTU on feed –higher by 20%, the other fertiliser plants would pay Rs510 per MMBTU on their feed – up by 69%. The fertilised fuel gas price would be Rs1,500 per MMBTU – up by Rs477 or 47%.

Other decisions

The ECC approved the debt rescheduling contract with Russia to the tune of $14.5 million as part of the G-20 Debt Service Suspension Initiative (DSSI) of 2020.

This debt relief was announced in April 2020 for IDA eligible countries to mitigate the socioeconomic impact of Covid-19.

So far, 37 debt rescheduling agreements with 15 creditor countries had been signed.

In order to clear the backlog of the Benazir Income Support Programme, the ECC approved a Rs40 billion grant for the beneficiaries, taking the total allocation to Rs400 billion.

A sum of Rs12 billion would go to pick the additional stipend of Rs833 per month per family for people of age 50 years and above, taking the total benefit to Rs3,067 per month. The below 50 years of age beneficiaries would keep getting Rs2,233 per month.

A sum of Rs22 billion would go to clear the arrears of the flood relief cash assistance. An amount of Rs5 billion had been given for two conditional grants for health and education of the children of the beneficiaries.