The Economic Coordination Committee (ECC) has decided to increase gas prices in order to address Pakistan’s growing debt and reach an agreement with the International Monetary Fund (IMF). The gas circular debt in Pakistan has reached Rs2.1 trillion and is increasing at a rate of Rs350-400 billion per year. The IMF has been advocating for the reduction of circular debt by increasing gas tariffs to relieve the burden on the government’s finances. This decision, along with the rationalization of power tariffs, is expected to lead to a staff-level agreement with the IMF in the upcoming November review.
The ECC has approved the increase in gas tariffs as per the schedule submitted by the Ministry of Energy. The proposed increase in local gas tariffs varies for different consumer categories. Non-protected domestic consumers may see an increase of up to 173%, while commercial consumers may experience an increase of over 136%.
The gas price hike is expected to have a positive impact on companies like Sui Southern Gas Company (SSGC), Sui Northern Gas Company (SNGP), Oil & Gas Development Company (OGDC), Pakistan Petroleum (PPL), and MARI consumers including Fertilizers. It will improve their cash flows and help reduce gas circular debt. However, the chemical sector is likely to be negatively affected as gas prices constitute a significant part of their total costs.
The Pakistani authorities are preparing for the first review of the IMF Standby Arrangement (SBA) in November. The Ministry of Finance has instructed all ministries and divisions to be ready for the review to ensure its successful completion. The impact of the gas tariff hikes is expected to be neutral for the fertilizer, textile, cement, steel, and IPP sectors.
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