To secure a new $8 billion loan from the International Monetary Fund’s (IMF) Extended Fund Facility (EFF) program, the government is set to terminate Rs129 billion in gas subsidies for consumers by June 2024, a Rs100 billion cross-subsidy for protected gas consumers and a Rs29 billion subsidy related to the diversion of RLNG.
As a senior Energy Ministry official stated, submission of a circular debt resolution plan is also required. Additionally, an audit report for Sui Southern Gas Company must be completed by June 2024 to analyze its financial losses. The government is expected to transition industries reliant on captive power plants to the national grid by December 2024.
The IMF’s requirements include introducing the weighted average cost of gas (WACOG) methodology for RLNG cost recovery and ending gas subsidies for the fertilizer sector, which was implemented on February 1, 2024.
A significant tariff hike for protected domestic consumers, ranging from 40 to 65.29 per cent since February 1, 2024, aims to minimize cross-subsidies. The IMF advocates for safeguarding vulnerable groups through affordable tariffs, suggesting using the Benazir Income Support Program (BISP) or a similar mechanism to maintain subsidy provisions.
The official highlighted the plan to recover RLNG diversion costs from domestic consumers using the WACOG method in the fiscal year 2024-25, thereby ending the relevant subsidy. Concerning circular debt in the gas sector, which has escalated to Rs2.9 trillion, the government aims to halt its monthly growth through biannual gas price adjustments. It is preparing to present a debt reduction strategy to the IMF following an initial rejection on February 12, 2024.
The IMF has also requested a thorough audit of Sui Southern Gas Company by June 2024 to address its status as a loss-making entity, emphasizing the need for comprehensive financial and operational restructuring within the sector.
