The federal government has decided not to reduce gas prices for all categories starting July 1, 2024, despite the Oil and Gas Regulatory Authority’s (OGRA) decision to lower them by 10 percent for the next fiscal year.
However, gas prices for captive power plants (CPPs) will be increased by Rs. 250 per mmBtu to Rs. 3000 per mmBtu on par with demands of the International Monetary Fund (IMF), reported a national daily. The government expects to generate Rs. 110-115 billion from this rate hike which will be used to reduce the circular debt.
The Petroleum Division has instructed OGRA that Sui gas companies should use the surplus revenue to cut down the circular debt. The IMF has criticized CPPs for their low efficiency of 30-35%, leading to significant wastage of natural gas. The IMF has urged the government to connect all CPPs to the national electricity grid and align their gas prices with RLNG prices by January 1, 2025.
Overall, the government will incrementally increase CPP gas prices by Rs. 250 per mmBtu from July 1, 2024, and an additional Rs. 700 per mmBtu from January 1, 2025.
Previously, the Petroleum Division requested the Finance Division to allocate funds to reduce the circular debt. However, the finance ministry did not allocate any subsidies in the FY25 budget, deciding instead that the surplus from maintaining current gas prices would be used to reduce losses in the gas sector.
Currently, no subsidy is extended to domestic gas consumers. Industrial and high-end domestic consumers provide a net cross-subsidy of Rs. 110 billion per annum to protected and some non-protected consumers. The IMF has also mandated the government to adjust gas tariffs twice a year, on July 1 and January 1, to prevent further increases in the gas sector circular debt.
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