The Economic Coordination Committee (ECC) recently made a decision to raise gas prices, a move that financial experts at Topline Securities, a brokerage firm, believe is a crucial step in Pakistan’s efforts to reach an agreement with the International Monetary Fund (IMF). This agreement is set for review in November.

The decision to increase gas prices is seen as a necessity due to the alarming escalation of gas circular debt, which has now reached a staggering Rs2.1 trillion.

Unfortunately, this debt is increasing at a rate of Rs350–400 billion annually, as stated by the Energy Minister.

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The IMF has consistently advocated for reducing circular debt by raising gas tariffs, as it places a substantial burden on Pakistan’s fiscal accounts. We anticipate that this, in conjunction with the rationalisation of power tariffs, will pave the way for Pakistan to secure a staff-level agreement during the November review.

Notably, the ECC approved the proposed tariff schedule submitted by the Ministry of Energy, which will come into effect on November 1, 2023, instead of the initially proposed date of October 1, 2023.

According to the approved schedule, there will be an increase of up to 173 per cent for non-protected domestic consumers, 136 per cent for commercial consumers, 86 per cent for export, and 117 per cent for non-export industries.

Looking ahead, Pakistani authorities are gearing up for discussions with the IMF during the upcoming review of the $3 billion loan programme scheduled for November.

Analysts predict that the rise in gas tariffs will help to minimise the disparity in gas tariffs for Sui Southern Gas Company (SSGC) and Sui Northern Gas Company Limited (SNGPL), resulting in a positive impact on their cash flow.

The combined revenues of both Sui companies, which totaled around Rs1.6 trillion, are expected to experience significant improvement following this gas price hike as the tariff differential narrows.

Furthermore, the increase in gas prices will have a positive impact on exploration companies like the Oil & Gas Development Company (OGDC) and Pakistan Petroleum (PPL) as it aids in reducing gas circular debt.