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Monday, July 15, 2024

Govt. Contemplates Yet Another Gas Price Hike to Tackle Circular Debt

The government is considering a 10-15% increase in gas prices to address the Rs1,250 billion circular debt, as reported on Thursday.

The International Monetary Fund (IMF) has urged the Pakistani government to raise natural gas prices starting January 1, 2024, despite the government already anticipating revenue of Rs980 billion in the current fiscal year due to a substantial gas price hike of up to 193%.

The aim is to address the existing circular debt, which stands at Rs1,250 billion. While senior officials of the Energy Ministry have disclosed considerations for a 10-15% increase, a final decision is pending, and a more conservative 5% hike is also under discussion, generating either Rs100 billion or Rs50 billion in additional revenue, respectively.

With the recent surge in gas prices, resulting in a staggering 193% increase from November 1, 2023, the government is projected to have a surplus revenue of Rs275 billion. However, a significant portion of this surplus, approximately Rs210 billion, is earmarked for covering the cost of diverting Re-Gasified Liquefied Natural Gas (RLNG) to the domestic sector during the ongoing winter season.

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Additionally, the government seeks to offset a Rs65 billion loss incurred due to the delayed notification of the gas price hike by four months. Sui Southern and Sui Northern, the gas companies, are expected to submit petitions to the Oil and Gas Regulatory Authority (OGRA) seeking an adjustment in gas prices from January 1, 2023, possibly requesting a downward revision.

Contrary to this, the IMF insists on a further 10-15% increase in gas prices from January 1, 2024. The Fund emphasizes that the government’s failure to biannually raise gas tariffs for the past decade has led to a substantial accumulation of the gas circular debt, contributing to the ongoing financial challenges.