Pakistan: Gas prices set to triple as subsidies for wealthy exporters remain

Islamabad [Pakistan]: The Pakistan caretaker government, on Monday, granted approval for a substantial gas price hike of up to 193 per cent, aimed at recovering an additional Pakistan Rupee (PKR) 350 billion from consumers to bail out struggling gas companies.

However, the proposal to completely abolish subsidies for the wealthiest exporters and industrialists was rejected, The Express Tribune reported.

For domestic consumers, gas prices are set to surge by up to 172 per cent, with commercial consumers facing a 137 per cent increase, while cement manufacturers will experience a staggering 193 per cent hike starting November 1.

The Economic Coordination Committee (ECC) of the Cabinet sanctioned these gas price increases for domestic, commercial, and compressed natural gas (CNG) users.

Additionally, tariffs for cement manufacturers were raised, according to The Express Tribune, an internationally affiliated newspaper in Pakistan.

The ECC also approved the import of 1 million metric tons of wheat and 2,00,000 metric tons of urea to meet the country’s needs, with the wheat import alone estimated to cost over USD 250 million at existing international market rates.

Chaired by Caretaker Finance Minister Shamshad Akhtar, the ECC meeting endorsed a summary from the Petroleum Division for the gas price increase, which will now be presented to the federal cabinet for formal approval.

“The ECC approved the summary of the Petroleum Division for an increase in gas prices,” said Energy Minister Mohammad Ali.

The finance ministry and the Planning Commission opposed providing gas to self-generation power plants owned by exporters and industrialists selling goods in the local market. Nevertheless, the ECC overruled their objections and agreed to provide up to 44 per cent subsidized gas to exporters.

This decision contradicts a previous 2021 federal cabinet decision, which had called for cutting gas to these self-generation plants.

Industry Minister Gohar Ejaz explained that gas prices for exporters and domestic industrialists had been raised to an average of USD 8.5 per mmbtu. However, these rates still remain USD 4 lower than prevailing liquefied natural gas (LNG) rates, as reported by The Express Tribune.

Gas prices for domestic consumers with up to 0.9 hm3 consumption have not been increased, but their fixed monthly bill has risen from PKR 10 to PKR 400. For consumption up to 1.5 hm3, the fixed monthly charge has increased from PKR 460 to PKR 1,000. Consumption over 1.5 hm3 now costs PKR 2,000 per month.

The tariffs for the highest domestic consumption now align with liquefied petroleum gas (LPG) costs, and previous slab benefits are retained for consumption up to 4 hm3, but not for the last slab in the non-protected domestic category.

Gas prices for up to 0.25 hm3 consumption have increased by 50 per cent to PKR 300 per mmbtu, for 0.6 hm3 consumption doubled to PKR 600, and for 1 hm3 consumption, the rate increased to PKR 1,000 per mmbtu, a 150 per cent increase.

For consumption up to 1.5 hm3, the ECC doubled the rate to PKR 1,200 per unit, for up to 2 hm3, it also doubled to PKR 1,600 per mmbtu. For up to 3 hm3 consumption, the maximum increase of 172% has been approved, setting the new price at PKR 3,000 per mmbtu.

Rates for the top two slabs have been raised even higher than LPG and LNG prices. For 4 hm3 consumption, it is now PKR 3,500 per mmbtu, and for the highest slab, it’s increased to PKR 4,000, significantly higher than imported gas prices, to fund subsidies for the wealthiest consumers.

These gas price revisions across all consumer categories are necessary to prevent the two gas distribution companies, Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL), from facing bankruptcy. The gas sector’s circular debt has already surged to Rs2.1 trillion, and the price increase will help these companies recover an additional PKR 395 billion from consumers.

The ECC also approved an increase in gas prices for exporters, raising them from PKR 1,100 to PKR 2,050 per mmbtu, an increase of PKR 950 or 86 per cent. These rates are still Rs1,600 per mmbtu lower than imported gas prices, according to The Express Tribune.

Due to a local gas shortage, Pakistan imports expensive LNG and supplies it to the domestic sector in winter and to the industry year-round. The current cost of imported LNG stands at PKR 3,650 or USD 12.5 per mmBtu.

Under the current rates, exporters will receive a subsidy of PRK 1,600 per mmbtu, equivalent to 44 per cent of the imported gas price, which will be paid for by charging higher gas rates to domestic consumers with higher consumption, CNG users, commercial consumers, and cement manufacturers.

Similarly, industrialists who do not export goods but have captive plants will face an increase in prices from PKR 1,200 to PKR 2,600 per mmbtu, an increase of PKR 1,400 or 116 per cent. Nevertheless, these wealthy industrialists will receive a subsidy of PKR 1,050 per mmbtu, amounting to 29 per cent of the imported gas price.

The finance ministry officials urged the ECC to reconsider its decision to provide subsidized gas to exporters, with the Planning Commission supporting redirecting gas supplies to efficient power plants to reduce generation costs. However, the ECC did not agree, The Express Tribune reported.