Cabinet divided over 69% gas price hike amid IMF warning

Secretary finance warns that delay beyond Thursday could cost Pakistan IMF’s $1.2b tranche

ISLAMABAD:

Federal cabinet members remained divided on Tuesday over a proposed increase of up to 69% in gas prices, amid warnings that any delay beyond Thursday could cost Pakistan $1.2 billion, the last loan tranche from the International Monetary Fund.

The Economic Coordination Committee (ECC) of the cabinet had to defer approval after supposedly pro-IMF programme cabinet members also spoke against the fresh price hike, according to meeting participants.

The Industry Minister, Dr Gohar Ejaz, representing the textile sector, opposed increasing gas prices for in-house power generation plants of industrialists fuelled by cheaper gas. Two other members opposed gas price increases for residential consumers ahead of Ramazan. They also sought time to study the proposal, which was not part of the regular meeting agenda.

The finance minister, also chairperson of the Sui Southern Gas Company Limited, advocated for the withdrawal of cross subsidies paid by industrialists to fertiliser plants.

As a result, the ECC had to defer the summary that had sought up to a 69% increase in prices for residential consumers and up to a 45% raise for other consumers aimed at recovering an additional Rs242 billion.

The ECC will meet again today (Wednesday) to consider the summary. The IMF has set a February 15th deadline to increase gas prices effective from February 1st.

The secretary finance plainly told the ECC that without a price increase, the IMF would not complete the next programme review, which carries the bonanza of the $1.2 billion last tranche of the loan package.

This would be the third proposed increase in prices that the government has made in the past year. The proposed increase would throw an additional burden of Rs242 billion on consumers, including Rs37 billion that the government would earn in sales tax.

It was the second revision in gas prices by the caretaker government in the past three months after it earlier increased prices up to 1108% – the highest for the most vulnerable households.

The fresh revision has also placed the maximum burden on the most vulnerable households with a 67% or Rs100 increase per unit for domestic monthly consumption of 0.5 cubic hectometers (HM3).

Earlier this month, OGRA issued a determination for revised estimated revenue requirements (RERR) for FY 2023-24 for both SNGPL and SSGCL. According to the revised determination, SNGPL requires revenue of Rs592 billion and SSGCL requires revenue of Rs310 billion this fiscal year. The total revenue requirement has been determined at Rs902 billion, arriving at an average prescribed price of Rs1,596 per mmbtu.

Sources said that there were heated arguments on the proposal of increasing gas prices for industrialists in the range of 18% to 34%. The Petroleum Division has proposed that the existing distinction between export and non-export industries using gas for in-house electricity generation should be abolished.

It proposed that one unified price of Rs2,950 per mmbtu may be fixed for all types of industries. This would result in an increase of Rs750 per mmbtu – or 34% for exporters and Rs450 or 18% for the non-export sector using gas for captive plants.

The industry minister claimed in the meeting that captive power plants were using 90% of the allocated gas while the rest of the 10% was used by processing industries. His claim was confronted by the energy minister who said that the use of captive gas was 55%.

Only five sectors – textile, carpets, leather, sports, and surgical goods – were using subsidised gas, while other exporters did not benefit.

The industry minister also objected to putting nearly Rs100 billion burden of subsidising fertiliser and residential consumers. The finance minister backed Ejaz and asked to prepare a fresh proposal for ending the cross subsidy being availed by fertiliser plants.

However, in case the government decides to fix a uniform gas price for all fertiliser plants, it will put the fertiliser plants on the Mari Gas network at a disadvantageous position. The revenue requirement for the Mari gas network plants requires the per-unit price at Rs555 per mmbtu, but the average prescribed price set by the OGRA is Rs1596. This would put an additional burden on farmers who would pay Rs175 billion extra – a sum that would go into the pockets of provinces in the shape of Gas Development Surcharge.

Read Govt unveils new tight gas policy

The Petroleum Division has proposed that the feed and fuel gas price for Engro Fertiliser should be set at Rs760 per mmbtu – a surge of 31% – and Fauji Fertiliser Bin Qasim plant should be increased to Rs1,750 mmbtu, showing an increase of 29%.

The effective date for revised gas tariff for Engro Fertiliser should be March 1st, 2024.

Agritech and Fatima Fertiliser are currently getting RLNG from the SNGPL network. The proposed price for these plants will be Rs1,596 per mmbtu, which is the average prescribed price in case these plants are offered system gas on SNGPL.

The Petroleum Division had proposed that for protected consumers, the existing tariff slabs should be increased in the range of Rs80 to 100 per mmbtu – an increase of 40% to 67%.

For unprotected consumers, an increase in the range of Rs200 to 300 per mmbtu has been proposed that translates into a surge of 5% to 67%.

The domestic category will still avail a cross subsidy of Rs108 billion as the protected consumers category and the first four slabs of the unprotected category are priced lower than prescribed price, according to the proposal.

The prices for bulk consumption are proposed to be increased from Rs2,000 to Rs2,900 mmbtu – an increase of 45%.
For the CNG sector, the government has proposed that the prices should be increased from Rs3,600 per mmbtu to Rs3,750 per mmbtu, equivalent to the RLNG price, being the fuel for the majority of CNG producers in the country.

Other decisions:

A finance ministry handout stated that the ECC approved a proposal to allow the flour mills to import wheat and export wheat flour products.

The ECC also approved a summary of the Power Division regarding the “Commissioning of 1263 MW CCPP Punjab Thermal Power (Pvt) Limited, Jhang (PPTL)”. The plant would not be entitled to idle capacity payments for a certain period.

The ECC approved a Rs6 billion subsidy for the import of urea. It was clarified that no subsidy on this account has been allowed by the government during the current year. The ECC also directed that the provincial governments be approached to clear their respective arrears of subsidy on urea.

In order to provide relief to the general public during Ramazan, the ECC approved Rs7.5 billion subsidy for the Benazir Income Support Programme beneficiaries that is already given in the budget.

Published in The Express Tribune, February 14^th, 2024.

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