In a significant policy shift that has sparked controversy, the Pakistani government has proposed substantial hidden gas subsidies for the nation’s wealthiest exporters while concurrently hiking rates for ordinary domestic consumers by up to 172%. This decision highlights the disproportionate allocation of resources favouring the elite, a move that contradicts agreements with the International Monetary Fund (IMF) and previous cabinet decisions.
Controversial Subsidies Amidst Rising Domestic Prices
The Ministry of Energy’s documents unveil that with the impending price review, certain domestic consumer categories and public transport will face prices exceeding those of imported gas. The proposed tariffs for commercial entities and cement plants are significantly higher than those for industrial captive power plants. Despite these disparities, top exporters and industrialists catering to the domestic market are set to receive substantial hidden subsidies.
The government initially aimed to approve these revised rates during a virtual Economic Coordination Committee (ECC) meeting last week. However, this plan was deferred, with the review now scheduled after Finance Minister Dr. Shamshad Akhtar’s return from China. This revision is critical to averting the bankruptcy of gas distribution companies Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL), as the sector’s circular debt has soared to Rs2.1 trillion.
Financial Strain and Policy Implications
The subsidy for captive power plants has met opposition from the Ministry of Finance, citing its contradiction with prior cabinet decisions and IMF commitments. The Ministry favours pricing consistent with Regasified Liquefied Natural Gas (RLNG) rates. Despite this, the Oil and Gas Regulatory Authority (Ogra) determined a substantial revenue requirement for SNGPL and SSGCL this fiscal year, essential for their financial viability.
The delay in increasing gas prices from the last government, ostensibly for political reasons, inflicted Rs46 billion losses on both companies in this fiscal year’s first quarter. Accumulating arrears due to below-required price hikes has compounded the financial strain.
Amidst these economic pressures, the wealthiest exporters are set to enjoy gas price subsidies, which domestic consumers, commercial users, and cement manufacturers compensate for with higher rates. The new policy also proposes benefits for Punjab-based exporters, such as a revised gas blend ratio favouring local over imported gas, further underscoring the uneven resource distribution amidst Pakistan’s energy crisis.
