IMF agreement implementation: PD revises gas supply priorities

ISLAMABAD: In a significant move aimed at conforming to International Monetary Fund’s (IMF) agreement, the Petroleum Division has revised its gas supply priorities by removing captive power plants from its list of prioritised sectors.

A spokesman from the Petroleum Division told Business Recorder that this decision marked the start of the government’s implementation of measures outlined in the agreement with the IMF.

As an initial step, the Division has revised the tariff upwards from Rs 1100 to Rs 2750 per mmbtu for captive power plants. Furthermore, the government has relegated the priority of gas supply to captive power plants, with plans for further tariff reviews in the upcoming gas tariff revisions.

A statement issued under the title “Pakistan, IMF Reaches Staff-Level Agreement on the Second and Final Review of the 9-Month Stand-By Arrangement,” emphasises the need to restore the energy sector’s viability including accelerating cost-reducing reforms such as improving electricity transmission and distribution, integrating captive power demand into the electricity grid, enhancing distribution company governance and management, and implementing effective anti-theft measures.

IMF asks for another hike in gas prices

On February 18, 2024, caretaker Minister for Commerce, Industries, Interior and Overseas Pakistanis, Gohar Ijaz had stated that the captive plant-based industry must shift to grid but, in violation of the agreement with the IMF, proposed electricity prices be fixed at cents 9/kWh instead of cents 14/kWh. He claimed that the government wanted to close down captive generation by January 2025 aimed at shifting industry load to grid electricity but added that electricity prices for industry had to be at regional prices as approved by the SIFC Apex Committee.

During a public hearing on the petition of Sui Southern Gas Company (SSGC) on March 18, industrialists opposed the move to remove captive power plants from the prioritised list by arguing that the industrial sector is cross subsidizing fertilizer and domestic sector. Once these industries exit the network, which has already started as most of them are installing biomass and local coal boilers, captive switching to grid, there will be no one left to bear the burden of domestic consumers and this will leave both gas companies suffer huge losses and the impact on circular debt will be unbearable.

Currently, there are approximately 800 SSGC’s connections to captive power plants with a total gas consumption ranging between 180-200 mmcfd. Around 369 connections are linked to the Sui Northern Gas Pipeline Limited (SNGPL) system, consuming between 200 to 250 mmcfd of gas.

The disparity in gas rates between provinces has also come under review of Petroleum Division, with rates in Khyber Pakhtunkhwa initially at Rs 2600 per mmbtu, significantly rising to approximately Rs 3700 to 3800 per mmbtu after RLNG blending in Punjab.

In Sindh, SSGC is blending 40 percent RLNG for captive and 20 percent RLNG for general industry which the industrialists said is unaffordable.

Pakistan’s agreement with the IMF involves aligning local gas prices with imported LNG prices. This realignment aims to reform the energy sector, particularly by redirecting gas from industries to more efficient LNG-fired power plants.

Copyright Business Recorder, 2024