Gas Prices May Rise Massively
Pakistan is likely to face a significant rise in gas prices in the upcoming fiscal year 2026–27, as state-owned gas companies have requested substantial tariff hikes. This development comes at a time when the country is already dealing with inflationary pressures and rising utility costs, making it a matter of concern for both households and businesses.
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The proposed increase is currently under review by the Oil and Gas Regulatory Authority, which has scheduled public hearings in major cities to assess the requests. These hearings are a critical step in determining whether the new tariffs will be approved and implemented from July 1, as per regulatory requirements.
Tariff Hike Requests by Gas Companies
Two major gas distribution companies, Sui Northern Gas Pipelines Limited and Sui Southern Gas Company, have submitted their petitions for tariff increases. SNGPL has requested that its tariff be raised to Rs. 2,084 per mmBtu, up from the current Rs. 1,853. This proposed increase also includes the cost adjustments related to liquefied natural gas diversion.
SSGCL, on the other hand, is seeking an even steeper increase, although exact figures have not been publicly detailed in the same manner. These requests reflect the growing financial pressures faced by gas utilities, including rising operational costs and system inefficiencies.
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Regulatory Process and Public Hearings
The regulatory authority has planned public hearings in Lahore and Karachi on May 12 and 13. These hearings will provide stakeholders, including consumers and industry representatives, an opportunity to voice their concerns and opinions بشأن the proposed tariff adjustments.
The timing of these hearings is crucial because the regulator is legally required to issue its decision at least 40 days before the end of the fiscal year on June 30. This allows the government to officially notify new gas prices before the start of the next fiscal year.
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Link with IMF Commitments and Circular Debt
The potential increase in gas tariffs is closely linked to Pakistan’s commitments with the International Monetary Fund. The country has agreed to revise gas tariffs twice a year in a timely manner to control the growing circular debt in the energy sector.
Currently, Pakistan’s circular debt has exceeded Rs. 3 trillion, posing a serious threat to economic stability. Regular tariff adjustments are seen as a necessary step to ensure cost recovery and reduce financial losses in the energy sector.
Unaccounted-for-Gas Losses and Proposed Reductions
A key factor in determining gas tariffs is the level of unaccounted-for-gas losses, commonly referred to as UFG. These losses occur due to leakages, theft, and inefficiencies in the gas distribution system.
An independent consultant hired by the regulator has proposed a gradual reduction in UFG allowances over the next five years. According to the proposal, the benchmark allowance for both companies would be reduced to 6.5 percent in FY 2027 and further lowered to 5.5 percent by FY 2031.
However, due to operational challenges, SNGPL and SSGCL would be allowed slightly higher limits. SNGPL would receive an additional 0.5 percentage points, while SSGCL would be granted an extra 1.7 percentage points. This means SNGPL’s allowance would start at around 7 percent in FY 2027, while SSGCL’s would be higher at 8.2 percent.
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Current Losses and System Inefficiencies
Despite the proposed reductions, actual UFG losses remain significantly higher than the allowed limits. SNGPL currently reports losses of 8.8 percent, while SSGCL’s losses are even higher at 13.6 percent. These figures highlight the inefficiencies in the system and the urgent need for infrastructure improvements and better management.
The current system-loss allowance included in gas prices stands at approximately 7.6 percent. This includes a performance-based component of 2.6 percent. However, the gap between actual losses and allowed benchmarks creates financial strain, which companies attempt to recover through higher tariffs.
RLNG Pricing Challenges
Another important issue raised by the consultant is the pricing mechanism for re-gasified liquefied natural gas. Currently, there is no separate benchmark for transmission and distribution losses related to RLNG.
Instead, the system uses the previous year’s average losses from indigenous gas. This method has led to a significant increase in RLNG prices, adding approximately Rs. 1,500 per mmBtu. As a result, RLNG prices are now nearly equal to domestic gas prices, reducing the cost advantage that was originally expected.
This pricing anomaly has raised concerns among industry experts, who argue that a more transparent and accurate system is needed to ensure fair pricing for consumers.
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Impact on Consumers and Economy
If the proposed tariff increases are approved, consumers across Pakistan are likely to face higher gas bills. This will add to the financial burden on households, especially at a time when inflation remains high.
Industries that rely heavily on gas, such as textiles and manufacturing, may also see an increase in production costs. This could reduce their competitiveness in international markets and further impact export growth.
At the same time, higher tariffs may help gas companies recover their costs and reduce losses, contributing to the overall stability of the energy sector. However, balancing consumer affordability with financial sustainability remains a major challenge for policymakers.
Need for Structural Reforms
The ongoing issues in Pakistan’s gas sector highlight the need for long-term structural reforms. These include reducing system losses, improving infrastructure, and adopting modern technologies for monitoring and distribution.
Additionally, diversifying energy sources and investing in renewable energy can help reduce reliance on imported gas. This would not only lower costs but also improve energy security in the long run.
Transparency in pricing mechanisms and better regulatory oversight will also be essential in building trust among consumers and ensuring fair practices in the energy sector.
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FAQs
1. Why are gas prices expected to increase in Pakistan?
Gas prices are likely to rise due to tariff hike requests by gas companies, rising operational costs, and efforts to reduce circular debt.
2. What is UFG and why is it important?
UFG stands for unaccounted-for-gas, which includes losses due to theft, leakages, and inefficiencies in the system.
3. How does the IMF influence gas pricing in Pakistan?
The IMF requires Pakistan to regularly adjust gas tariffs to ensure cost recovery and control energy sector debt.
4. What is RLNG and why is it expensive?
RLNG is re-gasified liquefied natural gas, and its pricing has increased due to the current loss calculation method.
5. Will higher gas prices affect industries?
Yes, higher gas prices can increase production costs and reduce competitiveness in global markets.
Final Words
The expected rise in gas prices in Pakistan reflects deeper challenges within the energy sector. While tariff increases may help address financial imbalances and reduce circular debt, they also place an additional burden on consumers and businesses. Moving forward, the government and regulators must focus on sustainable solutions, including reducing system losses, improving efficiency, and ensuring transparent pricing mechanisms. Without meaningful reforms, the cycle of rising costs and financial strain is likely to continue.
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