Pakistan raises downstream gas prices to cushion impact of high LNG prices

Pakistan's government has increased downstream gas prices for residential consumers and companies in the fertilizer, power, cement, and compressed natural gas sectors to reduce corporate debt levels of its gas companies, according to a Ministry of Energy circular.

The South Asian country's downstream natural gas prices, or the price at which gas distributors sell to end-users, are heavily regulated and price hikes allow state firms to pass on high import costs through market mechanisms.

Pakistan's Economic Coordination Committee, or ECC, a state-run body which approves key decisions related to finance, commerce, and energy, allowed gas price hikes from around 8% to as much as 235%, depending on the sector, the document showed.

Electricity producers saw gas price hikes of 8%, while cement companies saw increases of 81%, general industries 81% and compressed natural gas stations 72%, the document said. The higher gas prices will be effective retroactively from July 1, 2022, although a final decision is yet to be taken by the country's cabinet, chaired by Prime Minister Shahbaz Sharif.

Pakistan state-run Oil and Gas Regulatory Authority has recommended price hikes to recover around Pakistani Rupees 547 billion from consumers to save gas distribution companies Sui Northern Gas Pipelines Ltd. and Sui Southern Gas Co. from bankruptcy.

The latest hike will be able to recover around Rupees 660 billion above the recommended level to stop the buildup of circular debt in the gas sector in the current fiscal year, Minister of State for Petroleum Musadiq Malik said at a press conference in Islamabad in the week ended July 8.

The Ministry of Energy's petroleum division said that the gas sector's circular debt had increased to Rupees 1.232 trillion March 31, 2022, from Rupees 299 billion in June 2018.

The decision was also taken to reduce subsidies to the export industry, particularly the textile sector in Pakistan's biggest province of Punjab, where most of the textile companies are situated. This sector is geared primarily for exports and has a dedicated price slab for regasified LNG that has been raised to $9/MMBtu, from $6.5/ MMBtu, from the fiscal year started July 1, 2022, the document said.

The increase in prices will improve the financial health of the gas sector and help companies repay debt accumulated against LNG payments due to Pakistan State Oil, Farhan Mehmood, head of research at Sherman Securities, said.

Gas distributors have been buying LNG from Pakistan State Oil and not paying bills on time, analysts said.