ISLAMABAD: Amid the International Monetary Fund’s (IMF) persistence for retrospective gas price adjustments to curb runaway circular debt, the caretaker government has to take a series of immediate steps.

These steps include increasing cash payments to urban recipients of the Benazir Income Support Programme (BISP), allocating funds for winter gas in Balochistan, and making cash and non-cash book adjustments to settle inter-corporate payables and receivables among energy entities.

In addition, the government will need to initiate long-term structural changes, like the separation of transmission network from the two existing Sui gas companies, moving towards weighted average cost of local gas and imported LNG and enhanced production of oil and gas molecules.

Informed sources told Dawn that Oil & Gas Regulatory Authority (Ogra) and the ministries of finance and energy along with representatives from Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL) remained engaged on pricing mechanism and restructuring of payables and receivables of the energy sector entities and would continue consultations on Tuesday as well.

Rs10bn subsidy planned to protect the poor in Balochistan; more cash proposed for urban BISP recipients

At the centre of the challenge is how to insulate poor households in urban centres from the gas price shock. Urban households are accustomed to cheaper gas prices compared to their rural counterparts, who pay a heavy price for LPG and other expensive alternative fuels.

In Balochistan, where gas supply is crucial for the survival of tens of thousands during freezing winters, this becomes even more critical. This must be done at the cost of unaccounted-for gas (UFG) losses of SSGCL, which fluctuate between 14pc and 18pc.

About Rs10bn in subsidy is being envisaged to protect the poor in Balochistan, while an increase in cash payments under BISP is being worked out to allow poor domestic consumers in the cities to absorb the additional burden of the gas price increase determined by Ogra at 45-50pc for the current fiscal year.

“We have to take care of the low-income consumers through safety nets, for instance in Balochistan, where low-income consumers are comparatively vulnerable because of the severe drop in temperature and annual cold wave during the winter season,” said a senior government official, adding that a special tariff for Balochistan’s low-income consumers was being worked out at a cost of Rs10bn this year and estimated to increase in the future.

The official noted that residents in remote areas are forced to use expensive gas cylinders, while those in urban centres with piped gas connections enjoy much lower prices.

Interim Minister for Power and Petroleum Muhammad Ali has reported gas sector’s circular debt at Rs2.9 trillion on September 15, up from Rs2.7tr a week earlier. His predecessor had reported Rs1.7tr on his last day in office on Aug 9.

While the numbers remain fluid, circular debt’s substantial chunk could be settled through book adjustments against each other’s payables and receivables and dividend payments against the government shareholding. But the major hole has to be bridged through price adjustment before Sept 30 and with effect from July 1 so that part of the burden is billed to the consumers before heaving consumptions of winter.

Due to pressure from the upcoming IMF review at the end of September, stakeholders will convene again on Tuesday to finalise a summary for the Economic Coordination Committee (ECC) regarding gas price adjustments and subsequent ratification by the federal cabinet and formal notification.

Gas prices will increase for all consumers, including both protected and unprotected consumers, with varying percentage increases. The heaviest burden will fall on high-consumption consumers.

The source said the IMF had linked its go-ahead to the government’s relief to unprotected electricity consumers using 200 units a month to pay their inflated bills in three-month instalments.

The Ogra on June 2, 2023, announced a 50pc increase (Rs415.11 per MMBTU) for consumers of SNGPL, pushing the subscribed gas price to Rs1,238.68 per MMBTU. The regulator raised the gas price by 45pc (417.23 per MMBTU) for consumers of SSGCL for 2023-24.

The SNGPL still carries the previous year’s accumulative shortfall of Rs560.378bn up to FY23, while the SSGCL has a shortfall of Rs97.4bn and this is how the existing shortfall of both the gas companies stands at Rs657.766bn.

The official also went on to say that the government is working on seven areas including the area to optimise gas production from deleting gas fields and those wells that are closed down through using the technologies.

Published in Dawn, September 19th, 2023