The Economic Coordination Committee (ECC), chaired by Finance Minister Muhammad Aurangzeb on Sunday, approved the Petroleum Division’s request not to lower gas rates by 10%, as mandated by the Oil and Gas Regulatory Authority (Ogra), beginning July 1, 2024.
However, on the Petroleum Division’s proposal, the ECC allowed an increase in gas rates for captive power plants (CPPs) by Rs250 to Rs3,000 per mmBtu. The current gas price for CPPs is Rs2,750 per mmBtu.
The government increased the gas rate for CPPs in accordance with International Monetary Fund (IMF) guidelines. The Fund had given the government until January 1, 2025 to raise the gas rate for CPPs in line with the ring-fenced pricing of RLNG.
Prior steps for the IMF’s next staff-level programme of $6-8 billion include the government’s choices on gas pricing and a power tariff rise that will take effect in July 2024.
The decision would allow the government to earn Rs110-115 billion in extra money after satisfying its revenue requirements for the upcoming fiscal year. The extra cash would be used to pay down the existing circular debt, which has risen to a staggering Rs2,900 billion. The previous year’s losses had risen to Rs1,500 billion.
The Petroleum Division’s top officials had informed Ogra that Sui Gas businesses should decrease their circular debt using excess earnings.
The Fund claims that captive power plants are 30-35% efficient, squandering a large amount of natural gas. The majority of the CPPs are deployed in the Sui Southern network.
The IMF wants the government to link all of the CPPs to the national grid energy. The plants, which use natural gas as an input fuel, not only create energy for their own industrial use, but some also sell the power to electric power distribution firms.
As a result, the ECC agreed to raise gas prices for captive power plants by Rs250 per mmBtu beginning July 1, 2024, with the full increase of Rs700 per mmBtu taking effect January 1, 2025. This is how the government plans to meet the IMF’s deadline.
The ring-fenced cost of RLNG is Rs3,700 per mBtu.
The Fund also recommended the government to guarantee that gas tariffs are adjusted twice a year, on July 1 and January 1, to prevent a further increase in gas circular debt.
