The federal government of Pakistan is set to implement a gas tariff increase for protected consumers starting January 2024. The hike with International Monetary Fund (IMF) conditions aims to address the Rs100 billion deficit caused by the current gas system.
The forthcoming increase follows a significant 193% gas tariff hike implemented on November 1, 2023. Notably, the upcoming changes will impact 57% of the country’s gas consumers, currently classified as protected and largely exempt from previous increases.
The government intends to raise gas prices for protected consumers by 100% in two phases, scheduled for January and July 2024. This strategy is designed to eliminate the Rs100 billion deficit gradually.
Additionally, in compliance with IMF directives, the government plans to end the disparity in gas tariffs between export and non-export industries, a measure expected to generate an additional Rs 20-30 billion in revenue. The export and non-export sectors will be unified under a single industrial sector with uniform tariffs.
Impact on the Fertilizer Sector and Revenue Generation
The IMF has also urged the government to eliminate the Rs27 billion cross-subsidies currently extended to major fertilizer companies. The new policy will see changes in gas supply to captive power plants, with those connected to the national grid no longer receiving gas while others will receive RLNG instead of local gas.
The goal is to generate over Rs100 billion in additional revenue, reducing the natural gas circular debt, which currently stands at Rs1,250 billion. The revision of gas tariffs for both feedstock and fuel purposes in the fertilizer sector is part of this broader initiative. Despite these increases, the government assures that the rates for protected consumers will remain comparatively lower than other categories, with a phased approach to reducing the existing deficit.