Rs55b windfall expected from gas tariff hike
Listen to article
In line with International Monetary Fund (IMF) commitments, the government is projected to collect over Rs55 billion in prior year adjustments (PYA) during FY25, following an increase in gas tariffs for captive power plants (CPPs).
The tariff was raised from Rs3,000/mmbtu to Rs3,500/mmbtu for CPPs, pushing the weighted average gas tariff to Rs1,722/mmbtu, with an expected annual average of Rs1,689/mmbtu, said Hamdan Ahmed, an analyst at Optimus Capital Management. Additionally, the Oil and Gas Regulatory Authority's (OGRA) oil price assumption of $81.8/bbl, compared to FYTD25 prices of $76.5/bbl, suggests an upside potential to revenue estimates.
The power sector stands to benefit from this shift. If CPPs transition to the national grid, a net tariff reduction of Rs0.2-0.5/KWh could be achieved across all consumer segments.
"A net tariff reduction of Rs0.2-0.5/KWh for all consumers is achievable if CPPs shift to the grid," said Ahmed.
Additionally, capacity charges may decrease by Rs0.6/KWh, particularly as the majority of CPPs — around 3,676 GWh — are concentrated in the South. Increased reliance on low-cost nuclear and Thar coal plants would further aid in lowering electricity tariffs, he wrote in a research report.
On the other hand, the gas sector faces limited direct impact, though a complete shift of CPPs to the grid could lead to a Rs35 billion under-collection, necessitating a modest 5% gas tariff hike to meet revenue requirements. However, short-term challenges remain, including excess RLNG in the system, potential disruptions to domestic gas supply, and risks of exploration and production (E&P) curtailments. Despite this, the weighted average cost of gas remains below imported RLNG, favouring its reallocation to productive industrial use.
In line with IMF commitments, the government is expected to accelerate the grid transition of CPPs through levies, which could weigh on energy-intensive industries such as chemicals, textiles, and cement. However, Ahmed anticipated that electricity tariff reductions may offset some of the financial strain on these industries. Additionally, exploration and production companies (E&Ps) and the PSO could benefit from a gradual recovery in circular debt stock, which is around Rs2.8 trillion.
It is pertinent to mention that OGRA had notified an increase of Rs500/MMBtu in gas tariffs, effective February 1, 2025, for CPPs, with the primary beneficiary being the textile sector. Gas prices remained unchanged for all other consumer categories. Contrary to the Petroleum Division's proposal of a Rs100/MMBtu hike in unprotected residential consumer tariffs, the government opted to maintain the current rate. The Economic Coordination Committee also clarified its plans to gradually bring gas tariffs for CPPs at par with RLNG rates and instructed the Petroleum Ministry to take measures to impose a grid transition levy on CPPs.
The revision in gas prices for CPPs would reduce the gap between CPP tariffs and RLNG prices to a minimum of $0.12/MMBtu, compared to an average of over $6.5/MMBtu over the past three years, thus meeting IMF guidelines for tariff alignment, wrote JS Global.
However, contrary to common belief that companies using CPPs would shift to the national grid after the hike, they may choose to maintain CPP utilisation despite the increased price. The transition to the grid is estimated to take six months, and fluctuations in power supply could prove costly, said Ahmed.
"The supply, even at the increased price, is a sigh of relief for CPPs," wrote Shagufta Irshad of JS Global in her report. A 17% or Rs500/MMBtu hike in gas tariffs, compared to a potential complete cut in gas supply, would still provide relief for CPPs, especially in the textile sector.
Although the industry has arranged for alternative fuel and power sources — including multi-fuel-fired plants, increased solar power capacities, direct RLNG purchases from private companies, and power supply arrangements with respective power utilitiesa complete disconnection remains a threat. This is particularly concerning as an uninterrupted power supply from the grid throughout the year remains uncertain.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Express Tribune
an hour ago
- Express Tribune
Eid cattle sales now a middlemen's game
The sale of sacrificial animals has now become a fully commercial and highly profitable business, with the profits increasingly going to middlemen. Both the original owners of the animals — typically farmers and herders — and the end buyers incur losses. As a result, the demand for sacrificial animals continues to decline. According to contractors and livestock traders in Rawalpindi, this year saw a record 30% to 34% drop in the sale of sacrificial animals in the city. If a proper mechanism for the sale and purchase of sacrificial animals is not developed within the next two years, this decline could exceed 50%. A survey shows that immediately after Eidul Fitr, middlemen begin purchasing animals directly from villages through local agents. They pay in advance and transport the animals to their own farms, where they keep them for two months, set their own prices, and earn significant profits. When the moon of Eidul Azha is sighted, these animals are brought to the livestock markets. These middlemen buy animals at cheap rates directly from farmers and livestock owners, who barely make any profit. Meanwhile, consumers are forced to purchase the same animals at much higher prices. In addition, livestock markets have been fully commercialised. The market contractors, who often have no direct involvement with animals, win multimillion-rupee tenders from the municipal or district administration. They then rent out space in the market to livestock traders at rates ranging from Rs500,000 to Rs1 million per kanal for just 10 days. Other costs, such as electricity, water tankers, animal feed, tents for shade, and fans for ventilation, all add to the overall expense. An amount of Rs7,000 entry fee is also charged for a large animal and Rs4,000 for a smaller one. Loading and unloading charges are additional, and all of these expenses ultimately fall on the buyer. Previously, the original animal owners would sell their livestock directly in streets and local markets, with no market fees or middlemen involved. Now, however, what was once a religious tradition has been turned into a profit-driven industry by a growing mafia. Raja Khan, a contractor on High Court Road, explained that he rented one kanal of land for Rs800,000 for 10 days. Daily, he spent Rs3,500 on a water tanker, Rs10,000-15,000 on animal feed, and Rs2,000 on food for his three workers, who also bathed the animals to keep them cool in the summer heat. His electricity bill alone for 10 days was Rs100,000. Khan added even government and police officials didn't pay full price for animals. "Under such conditions, how can we sell animals at cheaper rates?" he said. "Every year, animal prices increase by Rs40,000 to Rs80,000. Within the next three to five years, sales may drop by 70%, and prices could rise by 50% to 70%." Contractor Irshad Abbasi says if market tender fees are abolished, animal prices could drop by 30% to 40% in a single day. He held the middlemen and administration responsible for the rising prices, adding: "When livestock markets are auctioned for Rs150 million to Rs180m, how can animals be sold cheaply?" This year, even on the eve of Eid, sales remained sluggish. By 9pm on Chand Raat, the market had essentially collapsed. Prices were reduced by up to 30%, but most genuine buyers had already left. As a result, many animals went unsold. Some were purchased by butchers at the last moment. Those who came after 9pm were able to buy good animals at 30% to 40% lower prices. Another major reason for the decline in sacrificial activity is the Rs 20,000 slaughtering fee for cows and bulls.
Express Tribune
an hour ago
- Express Tribune
Sanitary workers demand additional salary
Workers of Lahore Waste Management Company busy in removing the garbage as Punjab government launched modern and organized system of cleanliness in the Provincial Capital City with the collaboration of Turk companies. PHOTO: APP At least 11,687 workers of Rawalpindi Waste Management Company (RWMC) who collected 20,000 tons of garbage from 22 tehsils of Rawalpindi Division during the three days of Eidul Azha have demanded a full additional salary instead of accepting Rs 10,000 each as honoraria for their services like the last three years. The RWMC Labour Union (CBA) has demanded an additional salary instead of Rs10,000 as a reward for the company's employees in Rawalpindi in a letter addressed to Punjab Chief Minister. CBA Union President Raja Haroon Rasheed says that the workers have established an exemplary cleaning system for three days in the scorching heat, giving Rawalpindi an edge in this regard. The President of the CBA Union has said in a letter to the Chief Minister of Punjab that you have announced a reward of Rs10,000 to motivate the employees of the Waste Management Company.
Express Tribune
an hour ago
- Express Tribune
Govt employees, pensioners reject budget as 'cruel joke'
Sources told The Express Tribune that PM Sharif formed the committee after the planning ministry thrice rejected a proposal from the finance ministry to assume responsibility for provincial nature schemes. PHOTO: FILE Various employee and pensioner associations, including the All Pakistan Clerks Association (APCA), All Government Employees Grand Alliance (AGEGA), Railway Workers Union, Punjab Teachers Union, Educators Association, and Railway Pensioners Association, have outright rejected the new federal budget, labelling it a "traditional charade of words." They warn that the budget will lead to a stormy increase in inflation, pushing 50% of families below the poverty line. Leaders condemned the mere 10% increase in salaries as "insignificant and shameful," predicting a rise in suicides and starvation. They asserted that pension reforms have effectively "buried alive" pensioner families. Shehzad Manzoor Kiyani, Central Vice President of APCA, and Divisional President Chaudhry Mubashir stated that the budget is a "severe joke" on government employees. They highlighted the stark contrast with the significant salary increases for Members of Assemblies and ministers, while employees are being "buried alive." The elimination of ministries, divisions, institutions, and 40,000 posts will devastate the lower-income segments. Muhammad Shafiq Bhalwalia, Central Secretary General of the Education Pensioners Association, called the minimal salary increase for teachers, employees, and pensioners amidst soaring inflation "ridiculous." He pointed out that ministers, assembly members, senators, advisors, the Senate Chairman, and Speakers of Assemblies have seen a gradual 650% increase in their salaries before the budget. He argued that a comparison between the 2024-2025 budget records and the unchecked increase in privileges and salaries for the ruling class proves that this budget is pro-rulers but certainly not pro-employees or pensioners. He added that pension reforms are destroying the future of employees, pushing them into the abyss of poverty. Mubarak Hussain, Central Secretary General of the Railway Workers Union, stated that the budget was designed to benefit the government's cronies, with the business and trading class reaping all the advantages from tax reductions. He accused the government of favouring its political and business fraternity, calling the 10% salary increase a "scrap allowance" and the 7% pension increase a "mockery," akin to giving poison to pensioners. He claimed that the government extracts Rs600 billion in taxes from employees without providing any benefit, while those paying Rs8 billion in taxes enjoy benefits throughout the year. He demanded an abolition of salary tax for employees earning Rs600,000 to Rs1.2 million, and that the tax collection from those in grades 17 to 22 should be only 10%. He noted that no tax has been imposed on the salaries of Members of Parliament, Senators, and National Assembly members, suggesting a 25% tax should be levied on them. Rana Liaquat and Basharat Iqbal Raja, leaders of the Punjab Teachers Union and Educators Association, asserted that the government has treated state institutions like a "widow" and employees as "widowers," leading to a complete loss of trust in the current administration.
