Due to competing interests among cabinet members, the Economic Coordination Committee (ECC) of the cabinet on Wednesday agreed a rise in gas prices for residential and industrial consumers to collect an additional Rs242 billion. However, the committee was unable to finalize the rates.
Additionally, the ECC approved the application of a 25% sales tax on all SUV and CUV categories with a value of more than Rs4 million, taxes excluded. The Federal Board of Revenue (FBR) will receive an additional Rs4.5 billion in revenue as a result of the ruling.
The Petroleum Division is currently figuring out new rates for residential consumers and captive power plants in light of the discussions held in the ECC meeting. The issue of the increase in gas prices is expected to be brought before the federal cabinet on Thursday.
The deadline for meeting the International Monetary Fund’s (IMF) need to boost gas prices and fulfilling the promise to hike rates for industries’ internal gas plants is February 15.
For the Fauji Fertiliser Bin Qasim Limited (FFBQ) plant, which was receiving subsidies totaling Rs. 10 billion, there was ambiguity regarding the increased gas tariffs. The ministry of finance desired to remove it.
The industry minister was once more against the Rs 750 (34%), or million British thermal units (mmbtu), rise in gas rates for the manufacturers’ internal power plants. However, he consented to a fictitious rate hike.
In keeping with his pledges to the IMF, the energy minister attempted to raise rates.
During the meeting, Dr. Shamshad Akhtar, the Finance Minister and Chairman of the ECC, remarked that gas pricing for fertiliser plants that were receiving subsidies from bulk, power, industrial, cement, and compressed natural gas (CNG) consumers should be rationalised.
Engro Fertilizers was no longer eligible for the Rs. 39 billion feed and fuel gas subsidy, and the ECC authorized a revised tariff of Rs. 1,597 per mmbtu.
The Ministry of Finance released a statement stating that there was extensive discussion about the Petroleum Division’s summary, “Natural gas sale pricing FY 2023-24, effective February 1, 2024.”
The ministry stated, “After deliberation, the ECC determined that the revision of sale price and tariff should be consistent with Sui companies’ revenue requirements.”
Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) have a revenue requirement of Rs205 billion, according to information provided to the ECC by the Oil and Gas Regulatory Authority (Ogra). According to the sources, customers would have to fork over an extra Rs242 billion after taxes.
According to the finance ministry, the ECC suggested a set gas price for fertilizer plants, which should result in the elimination of subsidies.
Engro was only paying Rs. 200 per millibar BTU for feed gas; this is about to increase to Rs. 1,597. The finance minister convinced the Petroleum Division to raise the recommended price per mmbtu from Rs760 to Rs 1,597.
The extra cash that has to be collected from Engro will be utilized to somewhat mitigate the anticipated rise in gas costs for residential customers. The Petroleum Division had suggested raising home gas prices by 5% to 67%.
On Thursday, new prices that take into account the impact of additional money from the Engro facility will be presented before the federal cabinet.
The Competition Commission of Pakistan was instructed by the ECC to look into the unjustified rise in urea pricing and assign blame. Additionally, it gave the Ministry of Industries instructions to guarantee urea price stability.
The fertilizer industry did, however, mount a formidable lobby, and on Wednesday it once more approached the finance ministry, requesting that it reconsider the decision made the day before to remove the subsidies.
Pakistan has agreed to significantly raise gas prices by February 15 in accordance with an agreement with the IMF. A day earlier, Secretary of Finance informed the Executive Committee of the Chamber of Commerce that the IMF would not be able to finish the next programme assessment, which was required in order to release the final $1.2 billion tranche.
In the last year, the administration has suggested raising gas prices three times.
The Petroleum Division has suggested increasing monthly consumption of 0.5 cubic hectometres (HM3) by 67%, or Rs100, each unit, to place the greatest burden on the most vulnerable households.
There were spirited debates around the idea of raising gas costs for businessmen by 18% to 34%. The Petroleum Division suggested doing away with the current division between export and non-export sectors that use gas to generate energy internally.
It suggested that all industries might have a single, fixed price of Rs 2,950 per mmbtu. For exporters, this will mean a 34% increase in price per mmbtu, or Rs750, and for the non-export industry using gas for captive power plants, an 18% increase in price of Rs450.
Industries Minister Gohar Ejaz told The Express Tribune following the meeting, “The textile sector cannot take an additional burden of Rs33 billion after the previous increase in gas prices put a burden of Rs110 billion.”
He claimed that the textile industry suffered greatly as a result of the prior price hike, which also had an effect on its exports.
According to a Petroleum Division official, the new captive gas tariff rise would be far smaller than the original Rs2,950 per mmbtu because of the industries ministry’s strong opposition.
Pakistan has promised the IMF that it will raise gas prices to the level of imported LNG in order to render captive power plants uncompetitive. The current price of imported LNG is Rs 3,750 per millibarn.
The IMF and Petroleum Division seek to shift gas from industries to the power generation sector because industrial captive plants are far less efficient than LNG-fired power plants.
Only five industries—textiles, carpets, leather goods, sports goods, and surgical goods—were using gas that was subsidized on behalf of other exporters. The benefit was not being received by exporters of glass items, steel, ceramics, cement, rice, or petrochemicals.
The SNGPL network is now providing RLNG to Agritech and Fatima Fertilizer. The average prescribed price, in the event that these facilities are offered system gas on SNGPL, is Rs1,596 per mmbtu, which is the suggested price for these units.
The Rs9 billion in subsidies that these two plants are receiving ought to be removed rather than transferred to residential customers.
For the CNG sector, the ECC approved increasing prices from Rs3,600 per mmbtu to Rs3,750 equivalent to the RLNG price being the fuel for the majority CNG producers.
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