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Wednesday, July 17, 2024

ECC Approves Gas Tariff Hike

For residential consumers who are not protected, a substantial increase in gas rates has been approved by the ECC.

In a pivotal development on Monday, the Economic Coordination Committee (ECC) of the Cabinet sanctioned a momentous increase in natural gas prices, with rates surging by up to 194 percent. The new tariffs are scheduled to come into effect on November 1. The decision was made during an ECC meeting led by Caretaker Finance Minister Shamshad Akhtar, which gave the green light to the Petroleum Division’s proposal for a substantial, across-the-board gas price hike for all sectors.

The ECC’s decision comes after the postponement of gas price revisions by the previous government, leaving this politically sensitive task to the interim government. This delay in raising gas prices has taken a toll on the two gas companies, Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL), which have reported a deficit of Rs46 billion for the period spanning from July to September.

The impact of the tariff hike will vary among different consumer categories. For domestic protected consumers, fixed monthly charges have seen a substantial rise, jumping from Rs10 to Rs400. Non-protected consumers will face tiered charges, with the first category (up to 1.5 hm3) seeing an increase from Rs460 to Rs1,000 and the second category (above 1.5 hm3) experiencing a jump from Rs460 to Rs2,000.

Depleting Gas Reserves and the Need for Tariff Adjustments

It is essential to note that the country’s natural gas reserves are depleting at a compound annual growth rate of 5-7 percent, as estimated by the Petroleum Division. The tariff for protected consumers, constituting 57 percent of domestic users, remains unchanged, but a significant adjustment in fixed monthly charges for this category has been approved. These charges have surged from the existing Rs10 to Rs400 per month, resulting in an annual bill increase of up to 150 percent.

For residential consumers who are not protected, a substantial increase in gas rates has been approved. Rates will rise by 50 percent to Rs300 per mmBtu for consumption of up to 0.25 hcm, double to Rs600 per mmBtu for 0.6 hcm, and surge by 150 percent to Rs1,000 for up to 1 hcm. The most substantial increase of 173 percent applies to the category up to 3 hcm, where prices will skyrocket to Rs3,000 per mmBtu from the current Rs1,100.

The tariff for bulk consumption was raised by 25 percent, from Rs1,600 per mmBtu to Rs2,000. However, the special commercial category, which includes tandoor roti providers, will remain unchanged at Rs697 per mmBtu.

Addressing Food and Agriculture Concerns

In addition to the gas tariff adjustments, the ECC made significant decisions concerning food security and agriculture. The committee approved the import of one million metric tons of milling wheat through the Trading Corporation of Pakistan (TCP) using an open tendering process to maintain strategic reserves. This measure aims to ensure food security for the nation.

The ECC also encouraged the private sector to import specific milling wheat, provided it adheres to the criteria outlined in the Import Policy Order 2022. To further ensure transparency, the ECC instructed the Ministry of National Food Security and Research to arrange for third-party verification of the country’s wheat stock.

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Addressing the urea requirement for the upcoming rabi season of 2023-24, the Ministry of Industries and Production presented a summary outlining strategies for meeting this need. The ECC granted approval for the immediate import of 200,000 metric tons of urea fertilizers and emphasized the importance of a continuous gas supply for the fertilizer industry. Additionally, it was decided that provinces should play a more active role in sharing the cost of importing these essential resources.

These crucial decisions by the ECC not only impact the energy sector but also have far-reaching implications for agriculture, food security, and the broader economic landscape of Pakistan. The government’s delicate balancing act between meeting the demands of international financial institutions and addressing the needs of its citizens and industries underscores the complex nature of these policy decisions.