January 21, 2024 (MLN): The International Monetary Fund (IMF) has asked for another gas tariff adjustment in accordance with the Oil and Gas Regulatory Authority (OGRA)'s December 2023 determination till February 15, 2024.
The first review report under the Standby Arrangement published by the fund has asked for regular (automatic) implementation of semiannual gas tariff adjustments.
Moreover, the global lender has asked for the full phasing out of captive power usage, which reduces demand for electricity generated in the grid, forces electricity tariffs of grid consumers to cover unused capacity, and exacerbates power sector liquidity pressures.
The IMF has also asked to establish a more level playing field among non-household consumers, including by eliminating cross-subsidies to fertilizer producers and favorable rates for well-connected industries.
Furthermore , it asked for the formalization of a circular debt stock reduction plan.
The IMF said that the protection of the most vulnerable through lifeline and protected power and gas tariff slabs must continue until, over the longer term, they can effectively be replaced by a targeted Benazir Income Support Program (BISP) scheme.
The report highlighted that the gas sector’s Circular Debt stock has increased considerably, to an estimated Rs2.084 trillion (2.5% of GDP) at end-FY23, from Rs1.623 trillion (2.4% of GDP) at end-FY22, quickly approaching that of the power sector.
Liquidity constraints have, on the other hand, increased gas shortages.
The main driver of this evolution was the non-implementation of regular end-user gas price adjustments in line with semiannual OGRA determinations of prescribed prices since September 2020.
Additional drivers were the accumulation of the re-gasified liquid natural gas (RLNG) tariff differential since FY19, and diversion costs (that mainly reflect the diversion of costly RLNG to domestic consumers during the winter months).
In response, the government has started, supported by the World Bank, to take important reforms that aim at generating more cash and reducing circular debt, thus enabling gas companies to invest in their infrastructure and reduce unaccounted for gas (UFG) losses.
Specifically, it updated end-user gas prices and changed the structural end-user gas tariff in February 2023 and updated end-user gas prices again in November, effective November 01, 2023.
As part of the ongoing efforts to contain further circular debt accumulation and reform the gas sector, the government will continue with regular end-user gas price updates in line with revenue and legal requirements.
The government will implement the notification for OGRA’s scheduled semiannual gas price adjustment, anticipated for December 2023, within the mandated 40-day window (new SB, February 15, 2024).
Any price adjustment will maintain the current progressive slab structure for domestic consumers and maintain protection for the most vulnerable household consumers, seek to reduce large preferential cross-subsidies across industrial and commercial users, and further disincentivize captive gas use.
Finally, the government will advise OGRA within 40 days to enable the automatic notification of semiannual gas price determinations, in line with the 2022 Amendment to the 2002 OGRA Ordinance.
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Posted on: 2024-01-21T18:03:40+05:00
