21 hours ago
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- Business Recorder
Ministries oppose gas price increase
ISLAMABAD: The gas price increase has been opposed in its current form by several line ministries, citing concerns that it will disproportionately impact the industrial sector, lead to higher electricity prices, and result in cross-subsidization of the fertiliser industry at the expense of other industries.
The concerns raised by ministries representing various sectors have also been made part of the summary which came under consideration of the Economic Coordination Committee (ECC) of the Cabinet.
The Power Division stated that the proposed hike in gas rates for the power sector—from Rs 1,050/mmBtu to Rs 1,313/mmBtu—will increase electricity generation costs for thermal plants using domestic gas by approximately Rs 10 billion in FY 2025–26. This increase is expected to result in higher Fuel Cost Adjustments (FCA), ultimately passed on to consumers, raising electricity tariffs by around Rs 0.10 per unit.
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The Power Division further noted that rising generation costs could make electricity less affordable for all consumer categories. This may reduce the overall sales of Discos, with a knock-on effect on capacity payments in the power sector.
Additionally, the price hike would reduce the merit order ranking of gas-based power plants, pushing them below imported fuel plants such as those using coal. This shift could result in an estimated foreign exchange exposure of around $140 million due to increased coal imports. The Division cautioned that such a change in the energy mix must be carefully considered due to its implications for energy affordability, the balance of payments, and broader macroeconomic stability.
In a scenario where imported fuel-based plants replace gas plants, the Sui gas companies could face estimated revenue losses of Rs 39 billion, depending on global fuel price trends.
The Power Division also addressed a reported Rs 41 billion revenue shortfall claimed by SNGPL, attributed to RLNG diversion. However, it emphasized that the cost of RLNG diversion is already covered under Gas Supply Agreements (GSAs) with government power plants and reimbursed through CPPA-G via NPD payments. Therefore, it recommended that only genuinely unrecovered amounts, if any, be allowed in SNGPL's accounts.
The Ministry of Industries and Production (MoI&P) expressed concern that increasing gas prices for the general industry—from Rs 2,150 to Rs 2,350/mmBtu—will escalate the cost of doing business, hinder industrial growth, and damage export competitiveness. The Ministry warned this would further disadvantage Pakistani industries compared to regional competitors.
MoI&P highlighted that the new National Tariff Policy 2025–30 aims to reduce Customs duties on finished goods and decrease input costs for locally manufactured products. These objectives would be undermined if the cost of industrial inputs like gas continues to rise. The Ministry recommended that the Petroleum Division reconsider its decision and refrain from increasing gas prices for the general industry.
The Finance Ministry also raised objections, noting that while gas prices for the fertiliser sector have been kept unchanged, the process industry will face a Rs 200/mmBtu increase. It argued this effectively results in the process industry cross-subsidising the fertiliser sector. The Petroleum Division was urged to consider full cost recovery from the fertiliser sector to alleviate the subsidy burden on the rest of the industry.
Furthermore, the Finance Ministry criticized the current practice of recovering Unaccounted-for Gas (UFG) losses through consumer pricing, which it said discourages utilities from improving operational efficiency. It recommended that the Petroleum Division brief the ECC on planned UFG reduction measures and their financial implications.
The ministry also requested the Petroleum Division to inform the ECC whether lifting the moratorium on new gas connections could help address surplus RLNG issues and the curtailment of indigenous gas production.
Copyright Business Recorder, 2025
