The International Monetary Fund (IMF) has presented a stringent set of demands to Pakistan's government, targeting a comprehensive overhaul of the country's beleaguered gas sector. The proposed reforms aim to tackle the spiraling circular debt, estimated at a staggering Rs 2.9 trillion, by implementing significant tariff increases and slashing subsidies.
Core IMF Demands for Structural Reform
Central to the IMF's prescription is the immediate revision of gas tariffs. The fund has called for a nationwide uniform gas price, eliminating the current disparity between the north and south zones. This move is intended to streamline pricing and reduce administrative complexities.
Furthermore, the IMF has demanded the complete elimination of subsidies for roti and tandoors (bread makers), a politically sensitive sector. It also insists on ending preferential tariffs for the export-oriented sectors, including fertilizers, textiles, and captive power plants. The goal is to phase out all cross-subsidies, making consumers pay the actual cost of gas.
The fund has set a clear timeline, urging the government to notify new gas tariffs for the fiscal year 2024-25 by July 10, 2024. It has also pressed for the resolution of the long-pending issue of Weighted Average Cost of Gas (WACOG) and the timely submission of quarterly and annual tariff adjustment requests by the gas utilities, Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC).
The Root Cause: Mounting Circular Debt
The urgency for reform stems from the crippling circular debt plaguing the gas sector. This debt has ballooned due to a combination of factors:
- Unpaid bills and defaults: Both private and government sectors owe massive amounts to gas companies.
- Tariff differential subsidies: The government often fails to reimburse gas companies for the difference between the cost of gas and the subsidized price charged to consumers.
- Inefficiencies and theft: System losses, including theft and poor infrastructure, contribute to revenue shortfalls.
- Currency devaluation: The cost of imported Liquefied Natural Gas (LNG), purchased in US dollars, has skyrocketed with the rupee's depreciation, but tariffs have not kept pace.
This debt chain severely impacts the operations of SNGPL and SSGC, hindering their ability to invest in infrastructure, pay their own suppliers (like Pakistan State Oil for LNG), and maintain a reliable supply.
Potential Impact and Government's Challenge
The implementation of these reforms will have direct consequences for both households and industries. Domestic consumers can expect higher monthly bills, especially those in higher consumption slabs. Industries, particularly exporters who enjoyed cheaper energy, will face increased production costs, potentially affecting their competitiveness.
The government, led by the Petroleum Division, faces a delicate balancing act. It must satisfy the IMF to secure the ongoing loan program and stabilize the economy, while simultaneously managing the political and social fallout of removing subsidies and raising energy costs for the public and key economic sectors.
Failure to act, however, risks allowing the circular debt to grow further, threatening the entire energy supply chain and necessitating even more drastic measures in the future. The proposed overhaul represents a painful but critical step toward placing Pakistan's gas sector on a sustainable, market-driven footing.
