ECC shared the gas price increase by 69%.

Islamabad:

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

The Cabinet’s Economic Coordination Committee (ECC) had to delay approval after alleged cabinet members of the pro-IMF program also spoke out against the new price hike, according to meeting participants.

Industries Minister Dr Gohar Ejaz, representing the textile industry, opposed the hike in gas prices for industrialists’ domestic power plants that are powered by cheaper gas. Two other members opposed increases in gas prices for domestic consumers ahead of Ramadan. They also sought time to study the proposal, which was not part of the regular meeting agenda.

The finance minister, also chairman of Sui Southern Gas Company Limited, advocated the withdrawal of cross-subsidies paid by industrialists to fertilizer plants.

As a result, the ECC had to postpone the brief which had called for an increase of up to 69% in prices for domestic consumers and up to 45% increase for other consumers with the aim of recovering an additional Rs 242 billion.

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

The finance minister clearly told the ECC that without a price hike, the IMF will not complete the next program review, which carries the bonus of the last $1.2 billion tranche of the loan package.

This would be the third proposed price hike the government has made in the past year. The proposed hike would cost consumers 242 billion rupees, including 37 billion rupees the government would earn from sales taxes.

It was the second gas price review by the caretaker government in the last three months after previously raising prices by up to 1108% – the highest for the most vulnerable households.

The new revision also imposed the maximum burden on the most vulnerable households with an increase of 67% or Rs 100 per unit for household monthly consumption of 0.5 cubic meters (HM3).

Earlier this month, OGRA issued a decision on revised estimated revenue requirements (RERR) for the financial year 2023-24 for both SNGPL and SSGCL. As per the revised determination, SNGPL requires revenue of Rs 592 billion and SSGCL requires revenue of Rs 310 billion this financial year. The total revenue requirement has been fixed at Rs 902 billion, resulting in an average prescribed price of Rs 1,596 per mmbtu.

Sources said there were sharp disagreements over the proposal to hike gas prices for industrialists from 18% to 34%. The Petroleum Directorate has proposed to remove the existing distinction between exporting and non-exporting industries that use gas for domestic electricity generation.

He suggested that a consolidated price of Rs 2,950 per mmbtu may be fixed for all types of industries. This would result in an increase of Rs 750 per mmbtu – or 34% for exporters and Rs 450 or 18% for the non-exporting sector using gas for captive installations.

The Minister of Industry argued in the meeting that the captive power plants use 90% of the available natural gas while the remaining 10% is used by the manufacturing industries. His claim was countered by the energy minister who said the use of captive gas was 55%.

Only five sectors – textiles, carpets, leather, sports and surgical goods – used subsidized gas, while other exporters did not benefit.

The industries minister also objected to the levy of nearly Rs 100 billion on fertilizer and domestic consumer subsidy. The finance minister supported Ejaz and asked for a new proposal to be prepared to end the cross-subsidy benefiting fertilizer factories.

However, should the government decide to set a single gas price for all fertilizer plants, it will put fertilizer plants on the Mari Gas network at a disadvantage. The revenue requirement for Mari gas network facilities calls for the unit price at Rs 555 per mmbtu, but the average prescribed price set by OGRA is Rs 1596. This would further burden farmers who would pay an additional Rs 175 billion – an amount that would go into the pockets of the provinces in the form of gas development levy.

Reading Government unveils strict new gas policy

The Petroleum Department has proposed that the price of feed and fuel gas for Engro Fertilizer should be set at Rs 760 per mmbtu – a 31% increase – and Fauji Fertilizer Bin Qasim plant should be raised to Rs 1,750, showing an increase of 29%. .

The effective date of the revised natural gas tariff for Engro Fertilizer should be March 1, 2024.

Agritech and Fatima Fertilizer are currently receiving RLNG from the SNGPL network. The proposed price for these plants will be Rs 1,596 per mmbtu, which is the average projected price in case these plants are offered system gas to SNGPL.

The Petroleum Directorate had suggested that for protected consumers, the existing tariff slabs should be increased in the range of Rs 80 to Rs 100 per mmbtu – an increase of 40% to 67%.

For unprotected consumers, an increase in the range of Rs 200 to Rs 300 per mmbtu has been proposed which translates to an increase of 5% to 67%.

The domestic category will continue to benefit from a cross-subsidy of Rs 108 billion as the protected consumer category and the first four slabs of the non-protected price category have a lower than intended price, according to the proposal.

Bulk prices are proposed to rise from Rs 2,000 to Rs 2,900 Mmbtu – a 45% increase.
For the CNG sector, the government has proposed to increase prices from Rs 3,600 per mmbtu to Rs 3,750 per mmbtu, which is equivalent to the price of RLNG, which is the fuel for the majority of CNG producers in the country.

Other decisions:

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

The ECC also approved a summary of the Department of Power on “Commissioning of 1263 MW CCPP Punjab Thermal Power (Pvt) Limited, Jhang (PPTL)”. The factory will not be entitled to idle payments for a certain period of time.

ECC approved subsidy of Rs 6 billion for import of urea. It has been clarified that no subsidy has been allowed on this account by the government in the current year. The ECC also directed that the provincial governments be approached to clear their respective urea subsidy arrears.

In order to provide relief to the general public during Ramadan, the ECC has approved a subsidy of Rs 7.5 billion for the beneficiaries of the Benazir Income Support Scheme which has already been given in the budget.

Published in The Express Tribune, February 14^u2024.

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