IMF delineates steps to curb gas circular debt
- Fund suggests price adjustments should continue to move toward the full phasing out of captive power usage this year
ISLAMABAD: The International Monetary Fund (IMF) has said that continued timely gas tariff determinations and notifications within the required 40-day window, while protecting vulnerable households, starting with the June 2024 semiannual adjustment, are critical to preventing further gas circular debt (CD) flow.
The IMF released its second and final review under the stand-by arrangement report on Friday.
The IMF observed the resumption of gas tariff adjustments (after some delay) in line with cost recovery has contributed to a modest decline in natural gas circular debt (CD) to Rs2,083 billion (2.0 percent of GDP) as of January 2024.
IMF briefed about tariff, circular debt plans
The Fund suggested that price adjustments should continue to move toward the full phasing out of captive power usage this year, with cheaper natural gas prioritised for the most efficient power plants.
They should also include efforts to fully equalize gas prices for all fertiliser companies. The authorities signaled an intention to move toward fully implementing a weighted average cost of gas (WACOG) across Pakistan, which would introduce a uniform gas price while helping to ensure cost recovery.
The report pointed out that Pakistan implemented another significant (24 percent on average) gas tariff increase on February 15. The change maintained a progressive rate structure to protect vulnerable residential consumers; significantly increased and equalised prices for fertilizer companies in the system; and modestly increased prices for captive power and some industrial users.
The Fund acknowledged that Pakistan met the Structural Benchmarks (SBs) on the notification of the semiannual gas tariff adjustment.
The RLNG has become an increasingly larger component of the gas mix in Pakistan given declining natural gas supplies (partly driven in turn by years of under-pricing); RLNG has subsequently been diverted to domestic users at below full cost, the report says.
Copyright Business Recorder, 2024
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