Starting July 1, 2024, the federal government will not reduce natural gas prices for the general public, despite a recommendation from the Oil and Gas Regulatory Authority (OGRA) to lower them by 10%. Instead, the government has chosen to increase gas prices specifically for captive power plants (CPPs).
The new rate for CPPs will be Rs3000 per mmBtu, up from the current Rs2750 per mmBtu, an increase of Rs250 per mmBtu. This decision aligns with the requirements set by the International Monetary Fund (IMF) as Pakistan seeks another bailout package to prevent economic default. The government expects this increase to generate an additional revenue of Rs110-115 billion.
For other gas consumers, the prices will remain unchanged. The extra revenue generated will be used to address the existing circular debt, which has reached Rs2,900 billion. The Petroleum Division supports the idea that the surplus funds should be utilized to reduce this debt.
The IMF has directed the Pakistani government to raise gas prices for CPPs to match the rates of Re-gasified Liquefied Natural Gas (RLNG) by January 1, 2025. In the first phase, the government will increase the gas price for CPPs by Rs250 per mmBtu starting from July 1, 2024. A second increase of Rs700 per mmBtu is planned for January 1, 2025, to comply with the IMF’s requirements.
My Opinion:
I believe that while the government’s decision to raise gas prices for captive power plants is aimed at meeting IMF conditions and generating much-needed revenue, it may have adverse effects on the industrial sector. Increasing costs for power generation can lead to higher production costs and potentially higher prices for consumers. It is essential to balance economic reforms with measures that protect industrial growth and consumer interests.
