Significant move aimed at addressing the International Monetary Fund’s (IMF) demands and controlling circular debt, the Pakistani government is reportedly planning to raise gas tariffs for fertilizer producers. three key ministries—Finance, Petroleum, and Industries—have initiated discussions on a plan to hike gas prices for fertilizer manufacturers.
Under this proposed decision, fertilizer factories will receive gas at a rate of Rs580 per MMBtu, a substantial increase from the current rate of Rs302 per MMBtu. Additionally, the cost of gas for feedstock purposes for fertilizer manufacturers is set to increase to Rs1,580 per MMBtu, reflecting a Rs556 per MMBtu increase.
The sources reveal that this tariff hike is expected to take effect before the first review of Pakistan’s $3 billion Stand-by Arrangement (SBA) loan with the IMF, which is scheduled to commence later this month.
The Petroleum Division is reportedly finalizing a summary detailing the gas tariff increase, which will be presented for approval at the Economic Coordination Committee (ECC) meeting. After receiving ratification from the federal cabinet, the new gas prices will be implemented, starting from the date of cabinet approval rather than July 1, 2023.
To ensure a zero increase in the monthly flow to circular debt in the gas sector, government officials have indicated that even protected residential consumers may face tariff increases. Consumers within the first four slabs, using gas up to 0.25 HM3, 0.5 HM3, 0.6 HM3, and 0.9 HM3, could see their rates rise from Rs300 to less than Rs500 per MMBtu.
Furthermore, the government intends to end the differential treatment of the fertilizer sector, possibly raising gas tariffs for feedstock purposes to Rs1,500 per MMBtu, a rate that would apply uniformly to all players in the fertilizer industry.
Currently, the fertilizer sector enjoys subsidized gas rates, with Rs510 per MMBtu for feedstock and Rs1,500 per MMBtu for electricity generation, steam, and housing colony use. It is noteworthy that some fertilizer producers have benefited from significantly lower gas prices, contributing to Marri Gas Company’s substantial loss of Rs4 billion last year.
The proposed tariff adjustments are seen as essential to address the growing circular debt crisis in the gas sector, which has reached an alarming Rs2,900 billion. The government’s actions are in line with its commitment to meet the IMF’s requirements and stabilize the country’s economic outlook.
