Government entities express objections to proposed gas price hike
In a move that's stirring up quite a stir, the Economic Coordination Committee (ECC) of Pakistan's Cabinet has proposed a significant increase in natural gas prices, with industrial and power sectors feeling the brunt of the hike. Despite the proposed changes, household consumers remain shielded from the increase, except for a potential surge in fixed charges.
Industrial Sector Coughing Under the Weight of New Prices
The ECC's decision comes as a response to IMF-mandated reforms aimed at cost recovery and tariff rationalization. For the industrial sector and power plants, this means a 10% increase in natural gas prices, starting from the next month. Furthermore, non-domestic consumers (which include industries) may face a 29% collective rate increase, adding approximately Rs72 billion to their revenue.
This gas price hike is expected to add around Rs0.12 per unit to the average electricity tariff, reflecting the pass-through of higher fuel costs to electricity consumers. The increased prices aim to remove subsidies from bulk consumers and push the power and industrial sectors to shoulder a greater portion of the market-based cost of gas.
Protecting Household Consumers From Financial Impact
In the face of inflationary pressures, the government has opted to safeguard household consumers from direct increases in gas prices, keeping their prices unchanged, and only adjusting fixed charges. This move protects households from immediate financial repercussions.
A shift from cross-subsidizing gas prices by charging industrial and power sectors less is underway. Instead, the revised pricing structure supports the transition toward eliminating cross-subsidies, favoring direct, targeted assistance for low-income consumers via social safety programs like the Benazir Income Support Programme (BISP).
What about the Industrial Sector's Concerns?
The Ministry of Industries and Production (MoI&P) has expressed concern that the increased gas prices for the general industry could escalate the cost of doing business, stifle industrial growth, and damage export competitiveness. The MoI&P warned that this would further disadvantage Pakistani industries compared to regional competitors.
The Finance Ministry, too, raised objections, arguing that the new pricing structure effectively cross-subsidizes the fertilizer sector by burdening the process industry with higher gas prices. The Finance Ministry urged the Petroleum Division to consider full cost recovery from the fertilizer sector to alleviate the subsidy burden on the rest of the industry.
Addressing the Unresolved Issues
The ECC has been asked by the Ministry to consider lifting the moratorium on new gas connections to address surplus RLNG issues and the curtailment of indigenous gas production. Furthermore, the Finance Ministry wants the Petroleum Division to brief the ECC on planned Unaccounted-for Gas (UFG) reduction measures and their financial implications.
This reform is expected to significantly impact the industrial and electricity sectors while improving the financial sustainability of Pakistan's gas pricing system. The changes became effective from July 1, 2025, marking a significant shift in Pakistan's energy pricing policy.
[1] Business Recorder
[2] Dawn
[3] The News
[4] ARDA
[5] The Express Tribune
Living and working in Pakistan can come with its fair share of challenges, and the latest economic reforms are no exception. Stay informed, and together we can navigate these changes and continue to prosper as a nation.
- The industrial sector is experiencing increased costs due to the proposed 10% rise in natural gas prices, a move that could impede growth and potentially harm export competitiveness.
- Despite the 29% collective rate increase for non-domestic consumers (including industries), household consumers remain shielded from the growth in gas prices, with only a potential surge in fixed charges.
- The Ministry of Industries and Production raised concerns over the financial impact on businesses due to the higher gas prices, suggesting it may curtail industrial growth and deter investment in the finance industry.
