Islamabad, 25 May 2024, (GNP): The International Monetary Fund (IMF) has urged Pakistani authorities to authorize the Oil & Gas Regulatory Authority (Ogra) to independently set gas sale prices twice per financial year, based on the established prescribed prices.
IMF suggests that the government should remove itself from issues related to tariff implementation.
This measure aims to prevent further accumulation of gas circular debt, which has risen to Rs. 29,000 billion.
IMF also reminded government officials to raise the gas tariff for Captive Power Plants to match the RLNG tariff by January 1, 2025, senior government officials informed.
“During the caretaker regime, the Economic Coordination Committee (ECC) had approved the decision under which the Ogra would be authorised to notify gas sale prices as per determined tariffs, and the government would not interfere and take 40 days to decide which kind of consumers would get subsidised tariff, keeping in view political considerations.”
Currently, the government does not provide subsidies to any domestic consumers for using natural gas. Instead, industrial consumers or high-end domestic consumers are covering a net cross-subsidy of Rs. 110 billion per annum for protected and some non-protected consumers.
IMF also urged government officials to ensure gas tariff adjustments twice a year, on July 1 and January 1, to prevent a new surge in gas circular debt, which currently stands at Rs. 2.9 trillion.
In the fiscal year 2023-24, the gas tariff was increased twice: first on November 1, 2023, by up to 193%, and then on February 1, 2024, by up to 66.67%, with the goal of collecting an estimated revenue of Rs. 920 billion against the revenue requirement of Rs. 701 billion.
These increases were implemented during the caretaker regime to prevent further buildup of circular debt. Additionally, the government will recover the RLNG diversion cost of Rs. 232 billion due to these tariff hikes.
However, during recent discussions, IMF emphasized the need for continuous biannual gas tariff adjustments, arguing that the failure to do so from 2013 to 2023 led to a massive buildup of Rs. 1 trillion in gas circular debt.
Regarding Captive Power Plants (CPPs), the IMF recommended increasing their gas tariff to match the RLNG tariff. Since these plants have 30-35% efficiency and most are installed in the Sui Southern network, the IMF also suggested connecting all CPPs to the national electricity grid.
The gas tariff for the CPPs currently stands at Rs2,750 per MMBTU. “The said plants, by using natural gas as input fuel, not only generate electricity for their industrial consumption but some of them also sell the electricity generated by the natural gas to electric power distribution companies (Discos).”
“The fund mission was also briefed on government efforts to implement the Weighted Average Gas Tariff (Wacog) formula. Government functionaries told IMF officials that it would take a long time to get the Wacog implemented as there are some constitutional hitches and the central government would have to take the provinces on board for developing the consensus owing to which it is currently not possible to implement it,” the officials said.
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The fund was informed that Sindh, Balochistan, and Khyber Pakhtunkhwa (KP) opposed the central government’s attempt to enforce the Weighted Average Cost of Gas (WACOG), arguing that it would violate Article 158 of the Constitution.
Sindh maintains that RLNG imports are intended solely for Tier-II natural gas consumers. Under the ring-fenced tariff arrangements and the existing Tier-I system, consumers using natural gas based on the WACOG tariff cannot bear the high cost of imported RLNG. With the RLNG price being ring-fenced, implementing the WACOG formula is challenging.
Article 158 stipulates that the province where the gas is produced has the first right to use it, with any surplus transported to provinces with lower or no gas production. Other provinces argue that they produce enough gas to meet their needs, claiming their gas is purchased at lower prices but sold back to them at higher rates.
