IMF urges gas sector reforms to curb circular debt

The International Monetary Fund (IMF) highlighted the significance of prompt gas tariff determinations and notifications, crucial in curbing the escalating gas circular debt, while safeguarding vulnerable households.

Stressing the necessity of adhering to the mandated 40-day window, the IMF underscored the urgency to initiate these measures commencing with the June 2024 semiannual adjustment.

In its latest report, the IMF conducted its second and final review within the stand-by arrangement framework, released on Friday.

It noted a slight decrease in natural gas circular debt to Rs2,083 billion (equivalent to 2.0 per cent of GDP) as of January 2024, attributing this decline to the resumption of gas tariff adjustments, albeit with some delay, aligned with cost recovery objectives.

The Fund recommended a continued trajectory towards eliminating captive power usage, advocating for the prioritization of cheaper natural gas for the most efficient power plants.

Additionally, it proposed efforts to standardize gas prices for all fertilizer companies, aligning with plans to implement a weighted average cost of gas (WACOG) across Pakistan, ensuring uniformity while facilitating cost recovery.

Acknowledging Pakistan’s recent 24 per cent gas tariff increase on February 15, the report highlighted its progressive rate structure protecting residential consumers, while enhancing and equalizing prices for fertilizer companies.

Furthermore, it recognized Pakistan’s adherence to the Structural Benchmarks (SBs) concerning the notification of the semiannual gas tariff adjustment.

The report also shed light on the increasing prominence of Regasified Liquefied Natural Gas (RLNG) within Pakistan’s gas mix, driven by dwindling natural gas supplies exacerbated by years of under-pricing.

Consequently, RLNG has been diverted to domestic users at subsidized rates, underscoring the complexity of the gas sector dynamics.