ISLAMABAD: The International Monetary Fund (IMF) has called for limiting the government’s authority to reduce gas prices, warning that lower tariffs for consumers could further increase circular debt in the gas sector.
According to sources, a recent meeting of the Cabinet Committee on Energy (CCoE) was informed that the IMF had taken note of the growing tariff differential in the gas sector during reviews under the Extended Fund Facility (EFF) and Stand-By Arrangement (SBA).
The widening gap between the prescribed gas prices and the tariffs charged to consumers has been contributing to the accumulation of circular debt in the sector, the sources said.
Meanwhile, the IMF has called for further amendments to the Oil and Gas Regulatory Authority (OGRA) Ordinance, 2002, to prevent the government from reducing gas tariffs below the rates determined by OGRA.
Under the proposed arrangement, the government would also commit to revising gas tariffs for consumers within the prescribed timeframe after OGRA determines the rates. The government would subsequently submit an implementation report to the IMF, according to the sources.
Following the IMF’s demand, the OGRA Ordinance, 2002 was amended through legislation in March 2022. Under the amended framework, it was also agreed that gas prices would be revised in a timely manner in line with OGRA’s determinations to prevent a further buildup of circular debt.
Unlike the power sector, where the government allocates subsidies in the federal budget to cover tariff differentials, the gas sector uses a cross-subsidy mechanism to protect low-income domestic consumers.
Under this system, tariffs for other consumers, particularly those in the industrial and commercial sectors, are kept relatively higher to meet the revenue requirements of gas distribution companies.
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Pakistan’s gas supply system primarily consists of two major components: the cost of gas production, or wellhead price, and the tariff charged to consumers.
Under the OGRA Ordinance, 2002 and the rules framed under it, the federal government has the authority to determine consumer gas tariffs.
