ECC approves no cut in gas prices from July 1

ISLAMABAD: The Economic Coordination Committee (ECC), which met here with Finance Minister Muhammad Aurangzeb here on Sunday, approved the Petroleum Division’s recommendation not to reduce the gas prices by 10 per cent, as was determined by the Oil and Gas Regulatory Authority (OGRA) from July 1, 2024.

However, the ECC approved a hike in gas prices for captive power plants (CPPs) by Rs250 to Rs3,000 per mmBtu on the recommendation of the Petroleum Division. The existing gas price for CPPs stands at Rs2,750 per mmBtu.

The government increased the gas tariff for CPPs in line with the IMF directions. The Fund had given the government the deadline till January 1, 2025 to hike the gas tariff for CPPs at par with the ring-fenced cost of RLNG. The government’s decisions about the gas prices and hike in power tariff becoming effective from July, 2024 are the prior actions for the IMF next staff-level programme of $6-8 billion.

The decision will help the government collect Rs110-115 billion as surplus revenue after meeting the required revenue requirements for the next financial year. The surplus revenue will be utilised to offload the existing circular debt in a staggered manner that has increased to a whopping Rs2,900 billion. The previous years’ losses have swelled to Rs1,500 billion.

Petroleum Division’s top functionaries had communicated to OGRA that Sui Gas companies should reduce the circular debt with the help of surplus revenue. The Fund argues that captive power plants have 30-35pc efficiency, wasting the huge quantum of natural gas. Most of the CPPs are installed in the Sui Southern network. The IMF wants the government to connect all the CPPs with the national grid electricity. The said plants, by using natural gas as input fuel, not only generate electricity for their industrial consumption but some of them also sell the power generated by natural gas to electric power distribution companies (Discos).

Therefore, the ECC decided to increase from July 1, 2024, the gas prices of captive power plants by Rs250 per mmBtu and the remaining hike of Rs700 per mmBtu will become effective from January 1, 2025. This is how the government would meet the deadline of the IMF.

The ring-fenced cost of RLNG stands at Rs3,700 per mmBtu.

The Fund had also asked the government to ensure gas tariff adjustments twice a year, from July 1 and from January 1, so that a new surge in gas circular debt could not emerge.