Pakistan increase gas prices (again) but structural changes still needed

February 18, 2024 (MLN): The outgoing caretaker government increased gas prices - not only to meet IMF's conditions but also- to move the sector to a sustainable pace.

The subsidies given on the gas and inappropriate pricing have rendered growth hampered and the sector rife with inefficiencies. This should pave the way for the last IMF tranche and set the tone for the next bigger bailout. 

This is great but not enough. Pakistan's domestic gas production is on a perpetual decline to nearly 3BCFD from 4BCFPD.

To grow as an industrial powerhouse, domestic requirements can not be less than 8-9BCFPD by 2030. Appropriate pricing mechanism, reduction in circular debt build-up and increased cash flow generation of EnPs is just one aspect of it. 

What we need is to create an infrastructure to import more LNG on a private to private basis. The government should try to cater to residential demand primarily and let bulk buyers arrange for their own and use the pipeline network for a nominal fee.

Third-party access rules need to be simplified along with terms being set for molecule flow from South to North. We will need the South-North Gas Pipeline with or without Russia's help. 

Policymakers must appreciate their inordinate decisions today affect growth for next 4-5 years, stop job creation, increase poverty, increase import bills and keep tax collection below optimum levels.

Had there been LNG terminals ready, lower UFG losses and lesser cross-subsidy of industry (that this govt tried to reduce), the country would have been in a better shape. 

EnP companies should be flushed with cash and given exponential targets for exploration without the need to pay bumper dividends.

It is imprudent to import LNG when your country has gas resources. Recently approved Tight gas policy and the ability of EnPs to sell gas to third parties on a commercial basis must catalyze domestic production. 

Now is the time to tap resources, reduce UFG losses, drill more and aim for sustainable, self-sufficient, import-reducing and job-creating decision makings. Don't expect SIFC to do everything.

Natural gas is a precious asset that must be utilized primarily for dollar-earning and import-substituting industries. Period.

The author is an independent economic analyst and writes on Twitter and Linkedin.