Govt’s 2nd Consecutive Gas Bomb – Pakistanis Need to Step Up

The caretakers last week raised gas prices once again to woo the International Monetary Fund (IMF). Previous gas bombs were apparently deemed insufficient to address the problem, prompting this latest adjustment.

Energy prices have continued to spike since last year, with the last 3 months largely dominated by domestic gas tariff hikes. The trigger was the import of costly gas from partner countries and the continued removal of subsidies on fuel that kept rates lower than in neighboring countries but higher compared to global trends.

The ripple effects since December 2023 have been immediate. Gas bills have spiked nearly x5, from roughly Rs. 8,000 in November, to around Rs. 40,000 and above for non-protected consumers. Fuel prices are expected to rise even further next month to account for gas circular debt and fresh requirements of acquiring another IMF program in April. Compared to the $3 billion bailout expiring next month, Pakistan aims to get an even bigger $10 billion program. Bigger loan -> Higher energy tariffs.

The latest price hike varies across different consumer segments. Residential users will experience up to 70 percent, with the greatest impact expected on low-income households.

Commercial consumers will see no change, while bulk consumers, including industries and fertilizer manufacturers, face higher rates.

Concerns arise regarding the competitiveness of the industrial sector, which is already burdened with cross-subsidies. The focus of the increase is primarily on captive users and ending the obvious discrimination between exporting and non-exporting sectors.

To address disparities in pricing within the fertilizer manufacturing sector, the government now wants uniform pricing, particularly for urea production. Doubts arise over the lack of oversight on fertilizer companies’ pricing practices, with some potentially benefiting massively from the price hikes and raking in windfall profits.

Fertilizer companies like Engro Fertilizer and Fauji Fertilizer Bin Qasim are tipped to benefit from the new gas rate hike while other market determinants like earnings and farmer turnover are expected to take big hits. Separately, uncertainties loom over potential price adjustments based on gas supply costs, particularly for companies relying on gas supply from Mari Petroleum.

The government should improve the pricing mechanism to prevent some companies from taking advantage and ensure that the IMF-led objective of curbing circular debt is met.

There are calls for stricter regulation of fertilizer companies’ profit margins. Establishing a fixed gross margin regime would ensure that the benefits of lower gas prices are passed on to farmers, mitigating the inflationary impact on food prices.

The secondary impact of the gas rate hike also includes a big bump in fertilizer prices, which could undermine the results of imminent inflation reduction.

The government’s energy tariff bombs go both ways. The timing, along with a lack of help for the most vulnerable, is brutal. It’s happening too quickly.

So, while the caretakers slowly move out and make room for a new federal government, fuel/energy rates are going up at a dangerous pace. Pakistanis are unprepared for this, and there is no clear plan in place to ensure the safety of society’s most vulnerable members.

  • پاکستانی قوم پھس قوم بن چکی ہے۔ آپس میں خوشی خوشی لڑ لیں گے۔ پر اپنے بھگوان سیاستدانوں کو نہ کچھ کہہ سکتے ہیں اور نہ کچھ بگاڑ سکتے ہیں۔
    تو پھر دیتے رہو بھاری بل اور ادارے بھی اول فول لگا کے بل بھیجتے رہتے ہیں۔

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