Islamabad [Pakistan], July 1 : In compliance with a key requirement from the International Monetary Fund (IMF), the government of Pakistan has implemented an approximately 9 per cent increase in gas rates for industrial captive power units, effective from July 1, Dawn reported.
This decision was ratified on Sunday during a special session of the Economic Coordination Committee (ECC), chaired by Finance Minister Muhammad Aurangzeb, as part of measures to fulfill obligations under a three-year IMF loan program.
The petroleum division said that in recent meetings held with the IMF mission, notification of the consumer gas prices on July 1 has been taken as a prior action, whereas phasing out captive power plants out of the gas grid by January 2025 has been taken as a structural benchmark, the Dawn reported.
The move, which blocks a proposed 15 per cent reduction amounting to PKR 133 billion in average gas rates due to lower international oil prices, has stirred varied reactions among stakeholders.
According to the Oil and Gas Regulatory Authority (Ogra), earlier slated for a PKR 180 per unit reduction in gas prices for fiscal year 2024-25 to meet statutory requirements of gas companies, the funds were redirected to absorb a substantial portion of circular debt, rather than pass relief to consumers facing inflation and new taxes, as reported by Dawn.
The ECC's decision mandates an increase in gas sale rates for captive plants within the general industry, raising the tariff to PKR 3,000 per million British thermal units (mmBtu) from the previous PKR 2,750, a move projected to generate increased revenues.
In addressing projected revenue needs, the petroleum division clarified that the Sui Northern Gas Pipelines Ltd and Sui Southern Gas Company Ltd had estimated revenue requirements for fiscal 2025, totaling PKR 897 billion. Current projections, based on existing consumer gas prices since February 1, 2024, indicate revenues exceeding PKR 1.025 trillion, leaving a surplus of PKR 133 billion.
"The decision also affects 349 industrial units operating captive power plants with 523 gas connections, contributing significantly to national exports," noted the ECC.
Acknowledging the economic impact, the petroleum division highlighted the challenge of meeting revenue shortfalls expected between January and June 2025, amounting to PKR 47 billion, following the commitment to phase out captive power units by January 2025 as per IMF directives.
"The phased closure of captive power units is a structural benchmark, underscoring the need for future adjustments in gas rates," emphasised the petroleum division, according to Dawn.
Earlier adjustments to gas tariffs in February, which included increases of up to 35 per cent, were part of broader efforts to stabilise energy markets amidst economic reforms.
"This decision aims to align our energy policies with fiscal imperatives while balancing the interests of industrial growth and consumer affordability," remarked Finance Minister Aurangzeb during the ECC session.
The government's strategy, as articulated by stakeholders, underscores a cautious approach to economic stabilisation amid global economic uncertainties and domestic fiscal reforms.
Looking ahead, stakeholders anticipate ongoing discussions with the IMF on additional structural benchmarks, including broader fiscal reforms and energy sector transparency.
"This decision reflects our commitment to fiscal prudence and economic resilience amidst evolving global economic dynamics," concluded the finance minister, Dawn reported.