Gas companies report Rs879bn loss: Minister justifies hike in gas prices

ISLAMABAD: State-run natural gas distribution companies have accumulated staggering losses of Rs879 billion (over $3 billion) during the fiscal year 2023. A decade ago, these losses amounted to a mere Rs18 billion.

Caretaker Minister for Energy and Petroleum Muhammad Ali said the decision to increase gas tariffs is aimed at addressing the country’s economic challenges. The mounting financial burden has compelled the government to increase the tariff, he said.

This decision has been prompted by the rapid depletion of local gas reserves and the need to align the selling price of gas, including Re-gasified Liquid Natural Gas (RLNG), with the government’s purchase costs, he said.

Speaking at a press conference on Tuesday alongside Caretaker Minister for Information Murtaza Solangi, the energy minister acknowledged the difficulty of the decision while emphasising its necessity for the nation.

Due to declining indigenous gas reserves, we have been forced to procure costly RLNG to meet energy demands over the past decade, the minister explained. Ali noted gas companies would have incurred losses exceeding Rs400 billion if gas prices had not been raised.

He highlighted the increase in losses over the years, stating, “In 2013-14, gas companies suffered losses of Rs18 billion, which escalated to Rs879 billion in 2022-23.

“For the past decade, indigenous gas reserves have steadily declined, compelling us to procure costly RLNG to meet our energy demands”, the minister explained. “In the past, governments shied away from raising gas prices.”

Ali noted gas companies would have incurred losses exceeding Rs400 billion if gas prices had not been raised. These losses would have been Rs191 billion in domestic gas and Rs210 billion in RLNG diversion, he said.

The minister disclosed revenue requirement for SNGPL and SSGC for FY2023-24, as determined by the Oil and Gas Regulatory Authority (OGRA), stands at Rs697 billion. This amount is needed to Sui companies for the purchase of gas, payment to people and other expenditures, he said.

Additionally, the diversion of Re-gasified Liquid Natural Gas (RLNG) to the domestic sector accounts for Rs210 billion. “With the recent gas price-hike, the circular debt in the petroleum sector will be contained,” Ali said.

The interim minister emphasised the government’s financial limitations had hindered investments in exploring new gas reserves, exacerbating the country’s dependence on imported fuels and inflating the import bill.

“Furthermore, mounting fiscal deficits stemming from import payments have driven up interest rates and inflation in Pakistan. Hence, these measures are expected to mitigate inflation and reduce interest rates,” Ali asserted.

He reiterated the overall circular debt in the energy sector has reached Rs2,100 billion, cautioning, “Had gas prices not been increased, the circular debt would have soared to Rs2,480 billion by June 2024”.

Ali clarified the gas tariffs for nearly 57pc of household connections remain unchanged, with only the fixed charges increasing from Rs10 to Rs400. The protected segment will continue to benefit from subsidised gas rates. “We have supported the protected and middle-class segments, constituting 93 percent of consumers,” the minister said.