WASIM IQBAL
ISLAMABAD: International Monetary Fund (IMF) projected that November 1, 2023, gas tariff raise will add to headline inflation in coming month and asked for a further raise in gas tariff in accordance with the Oil and Gas Regulatory Authority (OGRA) December 2023 determination till February 15, 2024.
The IMF released on Saturday first Review Under the Stand-by Arrangement, Requests for Waivers of Applicability of Performance Criteria, Modification of Performance Criteria, and for Re-phasing of Access-Press Release; Staff Report; and Statement by the Executive Director for Pakistan. “Inflation has generally moderated since June on easing food and energy prices, and headline CPI is now projected to average 24 per cent in fiscal year 24. While the November gas tariff increase will add to headline inflation in coming months, gradual declines are expected given lower core inflation and recent commodity price movements, with year-end inflation revised to 18.5 and 9 per cent in fiscal year 24 and fiscal year 25, respectively,” the report says.
The IMF pointed out further efforts include in gas sector: regular (automatic) implementation of semi-annual gas tariff adjustments, including OGRA’s December 2023 determination within the required 40-day window; full phasing out of captive power usage, which reduces demand for electricity generated in the grid, and forces electricity tariffs of grid consumers to cover unused capacity, and exacerbates power sector liquidity pressures; establishing a more level playing field among non-household consumers, including by eliminating cross-subsidies to fertiliser producers and favourable rates for well-connected industries and the formalisation of a circular debt stock reduction plan.
It further asked the government to continue protection of the vulnerable through protected gas tariff slabs until, over the longer term, they can effectively be replaced by a targeted BISP scheme. The report says that the gas sector’s circular debt has increased considerably—to an estimated Rs2084 billion (2.5 percent of GDP) at end-fiscal year 23, from Rs1623 billion (2.4 per cent of GDP) at end-fiscal year 22, quickly approaching that of the power sector. Liquidity constraints have, on the other hand, increased gas shortages. The main driver of this evolution was the non-implementation of regular end-user gas price adjustments in line with semi-annual OGRA determinations of prescribed prices since September 2020 to January 2023. The government apprised that the accumulation of the re-gasified liquid natural gas (RLNG) tariff differential since fiscal year 19, and diversion costs are one of the reasons (that mainly reflect the diversion of costly RLNG to domestic consumers during the winter months).
In response, we have started—supported by the World Bank—to take important reforms that aim at generating more cash and reducing CD, thus enabling gas companies to invest in their infrastructure and reduce unaccounted for gas (UFG) losses. Specifically, we updated end-user gas prices and changed the structural end-user gas tariff in February 2023 and updated end-user gas prices again in November, effective November 1, 2023. As part of our ongoing efforts to contain further CD accumulation and reform the gas sector we will.
The government committed to implement the notification for OGRA’s scheduled semi-annual gas price adjustment, anticipated for December 2023, within the mandated 40-day window (new SB, February 15, 2024). Any price adjustment will maintain the current progressive slab structure for domestic consumers and maintain protection for the most vulnerable household consumers, seek to reduce large preferential cross-subsidies across industrial and commercial users, and further dis-incentivise captive gas use. Finally, we will advise OGRA within 40 days to enable the automatic notification of semi-annual gas price determinations, in line with the 2022 Amendment to the 2002 OGRA Ordinance. This will include (i) gradually seeking moving toward prices provided to the fertiliser sector that are closer to cost-recovery. Gas provided to a section of the fertiliser sector receives a large cross-subsidy from industry and upon expiry of the current fixed concession fee tariff agreement; the cross-subsidy will end in March 2024; (ii) equalising rates between export and non-export industries.
