LAHORE: Despite IMF’s pressure to rationalise gas price adjustments on an urgent basis, the government’s failure to introduce gas price unification for the fertiliser industry is expected to add to the circular debt woes of the country.

Even though the Ministry of Energy had tabled a proposal for the unification of feed gas prices of fertiliser industry to bring it on a par with the industrial rate of Rs1,260 per MMBTU, the Economic Coordination Committee (ECC) has deferred the decision and formed an inter-ministerial body to deliberate on the matter.

According to official sources, the ECC was informed that a delay in gas unification decision will cause a loss of around Rs17 billion to Mari Petroleum during the current fiscal year.

At a recent media briefing, they said Interim Federal Energy Minister Muhammad Ali had highlighted that the country’s gas sector is facing an annual loss of Rs350 billion, while its circular debt has reached Rs2,900bn. Over the last four years, the gas sector circular debt has gone up by Rs1 trillion to make the losses unsustainable for the national economy.

Expressing surprise at the ECC decision, a note of the Chase Securities highlighted that “Amidst the incessant chatter about rising gas prices and the daily accrual of the gas circular debt stock, the government’s reluctance to decide on the price hike remains an enigma. Unlike fuel and electricity prices, which smoothly undergo periodic adjustments now, the gas price surge is caught in a vortex of delays.”

“Swift action on energy reforms is imperative; the subject still awaits substantial progress”, added Chase Securities.

Other industry analysts also believe that the government could face IMF’s displeasure in the upcoming economic review over its failure to implement the weighted average cost of gas (WACOG) to fully recover RLNG prices from domestic consumers.

Some fertiliser manufacturers are provided gas under the dollar-pegged Petroleum Policy 2012, which creates a lack of level-playing field within the sector in terms of input costs. With any round of rupee depreciation or increase in global crude oil rates, the costs of these manufacturers soar, and they are forced to adjust urea prices to maintain business viability.

The Ministry of Energy is convinced that to ensure consistent and stable urea pricing, it is crucial for all fertiliser manufacturers to have standardised gas pricing, regardless of the pricing regime in effect.

Published in Dawn, October 13th, 2023