Fixed gas charges jacked up by 50%
The government on Friday increased the fixed charges on gas bills by 50% and also jacked up gas tariffs for non-residential consumers but deferred a decision on import of up to 500,000 metric tons of sugar due to a disagreement over huge subsidies.
The Economic Coordination Committee (ECC) of the cabinet, which took the decisions, also approved Rs2.6 trillion in supplementary grants for repayments of the domestic and foreign debts in the current fiscal year, ending on Monday.
The ECC's meeting, which was held just three days before the start of the new fiscal year, underscores challenges that the Finance Ministry will keep facing in the new fiscal year 2025-26 due to competing demands for unallocated subsidies.
"The ECC proposed adjustments in energy sector tariffs and decided to maintain gas prices to protect household consumers with only fixed charges re-adjusted in the domestic sector to recover the asset costs", according to a statement issued by the Finance Ministry after the ECC meeting.
It added that the ECC allowed the price of gas for bulk consumers, power plants operating on natural gas and industry to be increased by an average value of around 10%.
However, where the ECC did not change gas prices for residential consumers it significantly increased the fixed charges on the residential consumers by 50%. For the protected category of domestic consumers the fixed charges were increased by Rs200 to Rs600.
In the non-protected category, for monthly consumption of up to 1.5 hm3, the fixed charges were increased from Rs1,000 to Rs1,500. Likewise, the fixed charges for consumption of over 2 hm3 were increased from Rs2,000 to Rs3,000.
The prices were changed to meet a condition of the International Monetary Fund to biannually adjust the gas prices.
The Oil & Gas Regulatory Authority last month determined the Estimated Revenue Requirements (ERR) for FY 2025-26 for both SNGPL and SSGCL. According to the determinations, SNGPL requires revenues of Rs534.5 billion and SSGCL requires revenues of Rs354.2 billion to sail through the FY 2025-26 respectively. The cumulative revenue requirements of both the Sui companies are Rs888.6 billion for the FY 2025-26.
The law mandates the federal government to ensure that the consumer gas sale prices should not be less than the revenue requirement determined by the Authority. At the current notified consumer gas sale prices effective February 01, 2025 the estimated revenues of both Sui companies by end FY 2025-26 are Rs847.714 billion.
The ECC approved to increase the gas prices for bulk consumers by 9% to Rs3160 per mmbtu. It jacked up the rates for power plants by 17% to Rs1230 and 7% for the industrial gas connections to Rs2300 per mmbtu.
Some of the members of the ECC criticized giving guaranteed 24% return on assets to Sui companies, which discourage efforts to improve efficiency by reducing line losses.
Sugar Import
The ECC could not take a decision on a proposal of up to 500,000 sugar imports to meet the local shortage in future, caused by the export of 765,000 metric tons sugar by the government of Prime Minister Shehbaz Sharif.
The ECC was told that inclusive of all taxes and duties, the imported sugar would cost Rs245 per kg, which is even higher than Rs190 local price. A member of the ECC said that the government has to give Rs85 per kg subsidy, which would require Rs42.5 billion supplementary grant in the next fiscal year.
However, during the meeting the Secretary Finance said that he would neither provide subsidies nor he would seek the permission of the IMF for allowing such subsidies or waive off the taxes and duties at the import stage. Without duty and taxes, the import price at the port is Rs153 per kg.
Deputy Prime Minister Ishaq Dar led committee has determined the need for the import of 750,000 metric tons of sugar due to anticipated shortages in the month of October and onwards. The ECC members urged to free the sugar market and maintain only strategic reserves of about 500,000 metric tons.
An official handout of the Finance Ministry stated that the ECC considered a proposal brought on by the Ministry of National Food Security and Research for import of sugar to stabilize the sugar prices.
The ECC approved the proposal of the Ministry for constitution of a 10-member steering committee led by Federal Minister for MNFSR and including Federal Minister for Commerce, SAPM to Ministry of Foreign Affairs, Secretary Finance Division, Chairman FBR and others to come back to the ECC with their recommendations on the matter, it added.
Banks' subsidies
The Finance Ministry stated that the ECC also discussed a summary by the Finance Division regarding changes in the home remittances incentive schemes. It said that the ECC tasked the State Bank of Pakistan and the Finance Division to propose and present a proper plan by 31st July to ECC, ensuring impact analysis and a roadmap for a properly-managed transition.
The ECC was informed that the banks have demanded Rs200 billion claims on account of subsidies under the Pakistan Remittances Initiatives. The Finance Ministry has already discontinued the subsidy for the next fiscal year. The central bank representative told the ECC that the SBP cannot give any subsidy due to restrictions imposed by the IMF.
Some of the members of the ECC objected to giving up to Rs6 per dollar subsidy, which was not benefiting the remitters and instead the money was going in the pockets of the commercial banks and the exchange companies. They urged instead to facilitate the manufacturing sector.
Other decisions
The ECC approved another Rs15.8 billion supplementary grant for the Ministry of Defence to cover the shortfall in admissible pay and allowances, in employees-related and non-employees related expenditures and clear the outstanding dues as part of the PM's Package for the martyrs of the recent Pak-India war. It approved another Rs5.5 billion supplementary grant for Strategic Plans Divisions as rupee cover for Pakistan Space & Upper Atmosphere Research Commission (SUPARCO) during CFY 2024-25.
The Cabinet body also considered a summary by the Finance Division for the launch of a risk coverage scheme for small farmers and under-served areas, and accorded in-principle approval to the proposal with instructions for further fine-tuning and incorporating in it additional safeguards before its planned launch on 14th August 2025.
The ECC was told that the scheme would likely bring 750,000 new agricultural borrowers into the formal financial system and generate an incremental credit portfolio of Rs300 billion during its disbursement tenure of 3 years from FY 26 to FY 28. The budgetary requirement for meeting risk coverage and operational cost of the banks is estimated to be Rs37.5 billion, spread over five years.