ECC Backs Gas Price Increase for Captive Power Plants to Meet IMF’s Financing Condition
The Economic Coordination Committee (ECC) has approved new natural gas prices starting July 1, 2024, as part of a condition set by the International Monetary Fund (IMF) for a new program.
At the recent ECC meeting, chaired by the finance minister, the Petroleum Division presented a summary on the new gas pricing. Officials explained that the Oil and Gas Regulatory Authority (OGRA) had determined the Estimated Revenue Requirements (ERR) for fiscal year 2024-25 for Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL). SNGPL needs Rs. 661 billion, and SSGCL needs Rs. 289 billion, totaling Rs. 897 billion for the year.
Under Section 8(3) of the OGRA Ordinance 2002, the government must advise OGRA to revise consumer gas prices by June 30, 2024, to ensure the new rates take effect from July 1, 2024. The amended ordinance requires that the consumer gas sale prices meet or exceed the revenue needs determined by OGRA.
With the current gas prices effective February 1, 2024, both Sui companies are projected to generate Rs. 1,025 billion in revenues for 2024-25, resulting in a surplus of Rs. 133 billion. The surplus is divided as Rs. 75 billion for SSGCL and Rs. 58 billion for SNGPL, assuming no change in gas prices.
In recent discussions with the IMF, revising consumer gas prices by July 1, 2024, was set as a ‘Prior Action.’ Additionally, phasing out captive power plants from the gas grid by January 2025 was identified as a ‘Structural Benchmark.’ Captive power plants, which use a significant amount of gas and RLNG, contribute additional revenues but also consume LNG, which sometimes leads to surpluses due to inconsistent power plant usage.
The Commerce Division provided a list of captive power units for export analysis. Data from PRAL showed that 349 units (with 523 gas connections) reported exports worth US$ 13.31 billion in FY 22. As part of the agreement with the IMF, captive power plants’ domestic gas tariffs will be aligned with RLNG tariffs. Currently, these plants receive different proportions of indigenous gas and RLNG from SSGCL and SNGPL networks, translating to tariffs lower than the notified RLNG tariff.
Annually, at the current tariff of Rs. 2,750 per MMBtu, surplus revenue from captive power units is estimated at Rs. 76 billion. The proposed revised tariff of Rs. 3,000 per MMBtu would increase the surplus to Rs. 92 billion. However, due to the IMF agreement to phase out captive power units by January 2025, there will be a revenue shortfall of Rs. 47 billion from January to June 2025. This shortfall will be addressed through price revisions effective January 1, 2025, based on OGRA’s review of revenue requirements.
The Petroleum Division proposed increasing the current indigenous gas tariff for the captive power industry from Rs. 2,750 per MMBtu to Rs. 3,000 per MMBtu. There are no proposed changes to existing consumer gas prices, and the Sui companies will continue supplying a blend of indigenous gas and RLNG to captive power units.
The Finance Division confirmed that the ECC has approved the new gas sale prices effective from July 1, 2024.
