Gas prices have finally increased by the caretaker Govt.

Pakistan’s caretaker administration has approved an increase in natural gas rates for various consumer groups, effective from November 1, 2023.

However, the decision was made after the Economic Coordination Committee (ECC) and the Federal Cabinet reviewed the Petroleum Division’s summary, which was based on the advise of the Oil and Gas Regulatory Authority (OGRA).

Need of Hike In Gas Prices

According to the government, the hike in gas prices was necessary to promote the efficient use of the scarce commodity, secure the supply chain’s sustainability and affordability, and avoid further buildup of circular debt.

Moreover, the government also highlighted diminishing natural gas reserves, rupee depreciation, inflation, and imported LNG as causes driving rising gas prices.

As part of the standby arrangement, the International Monetary Fund has been adamant about resolving the gap in the gas sector’s circular flow.

However, on 2 June 2023, OGRA announced its Estimated Revenue Requirements (ERR) for both SNGPL and SSGC for the fiscal year 2023-24.

According to this calculation, SNGPL and SSGC needed Rs. 358 billion and Rs. 339 billion in revenue, respectively.

Section 8(3) of the OGRA Ordinance 2002

According to Section 8(3) of the OGRA Ordinance 2002, the federal government was required to advise OGRA to adjust consumer gas prices in accordance with government policy.

This change was to take effect on July 1, 2022, and to be executed within 40 days after OGRA’s decision.

Unfortunately, this change in consumer gas prices has yet to be implemented.

As a result of this lag in price adjustment, the Sui firms had already borne the income gap from July to September 2023.

Moreover, this circumstance emphasizes the critical necessity for immediate action to correct this financial imbalance.

Economist Statement

“There’s a staggering variation across various non-protected slabs in the new pricing. Penalizing solely bulk domestic consumers serves no purpose — it’s akin to treating a symptom rather than the disease,” exclaims Afia Malik, Senior Research Economist at PIDE.

“Circular debt in the gas sector is a reality. The imperative for deregulation in the natural gas sector is clear as day — it’s a crucial step towards addressing this pressing issue.

Tariffs must pivot towards a cost-of-service basis, and subsidies and cross-subsidies must be consigned to history to ensure financial viability.

The practice of cross-subsidization across sectors has only served to encourage inefficient use. Piped natural gas is no less than a luxury; its misuse must be curtailed with immediate effect,” adds Afia Malik.

Domestic (Residential) Consumers New Tariffs

The government stated that by keeping prices low or steady, it had protected low-income individuals and companies.

For example, 57% of home users in the protected category face no increase in prices.

Moreover, the government has also imposed a fixed monthly tax of Rs. 400 for usage of up to 0.25 hm3.

Furthermore, the price of gas supply to roti tandoors remains constant.

The table below compares previous and new costs for domestic consumers:

Other Categories

Furthermore, the administration stated that it has rationalized gas pricing in the North and South areas in order to establish a level playing field for all.

By working with stakeholders, it has also designed a Regionally Competitive Energy Tariff (RCET) for export businesses.

According to the government, the goal is to discourage captive usage by export and non-export clients and encourage gas conservation in sectors where gas use is inefficient or substitute fuels are available.

The table below compares the previous and new prices for different categories:

To read our blog on “Hike in gas tariff to be notified in today’s cabinet meeting,” click here.