Hiking gas prices

Published February 16, 2024

BY increasing gas prices by up to 45pc to recover an additional Rs242bn from all categories of consumers, the caretaker government has met another goal of the $3bn IMF programme. The cabinet approved the price hike recommended by the ECC on Thursday — the deadline for the implementation of the IMF condition. The significant part of the decision is the approval of uniform gas rates for the cash-rich fertiliser companies, largely revoking massive subsidies being pocketed by them for decades. However, the powerful textile industry again got away with a much smaller raise than proposed by the energy minister for already hugely subsidised captive power — despite the condition to make gas supplies for inefficient captive power plants expensive in order to divert the resource to cheaper RLNG power plants for generation. Apparently, the industry minister, a former Aptma chairman, got his way on the pretext that higher captive power gas prices would affect textile exports.

While the increase in fuel prices has been made to ensure the timely release of the last tranche of $1.2bn under the Stand-by Arrangement facility ending in April, it was also crucial for the gas sector’s stability. The new government taking over soon will be constrained to negotiate another longer, bigger IMF bailout to prevent the nation’s finances from collapsing and avert a potential sovereign default. It was also crucial to improve the cash flow of the two public gas firms and slow down the increase in the circular debt in the gas sector, as well as discourage the wasteful use of the fuel. Higher gas prices would not only put more burden on the common man reeling under the rising cost of living, it will also potentially raise food and other prices further, and might delay monetary easing. The State Bank, which has maintained its key policy rate at 22pc, last month revised up its inflation projections for the fiscal year to 23-25pc from earlier estimates of 20-22pc. In its last monetary policy statement, it said that the impact of the tight monetary stance to bring down inflation was “diluted by sizeable adjustments in administered energy prices ... The large adjustments have significantly impacted the inflation outturns and its near-term outlook”. Unless the authorities undertake serious reforms to address the underlying structural issues in the energy sector to avoid such periodic shocks, price stability will remain elusive.

Published in Dawn, February 16th, 2024

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