The recent decision by the Economic Coordination Committee (ECC) of the Cabinet to increase the gas tariff for captive power plants from Rs 3,000 per mmbtu to Rs 3,500 per mmbtu has sparked significant discussions among industrialists and energy sector stakeholders.
This price hike aims to ensure the generation of necessary revenue for the gas sector during FY 2024-25, according to the Finance Division.
Gas Tariff Increase
The ECC's decision to raise the gas tariff for captive power plants to Rs 3,500 per mmbtu marks a significant shift in the gas pricing structure.
This increase is part of an overarching strategy to ensure the gas sector’s sustainability and continued operation throughout FY 2024-25
The higher gas tariff will lead to an increase in production costs, especially for industries with energy-intensive processes.
These include sectors like textiles, cement, and chemicals, which depend on stable energy pricing to maintain competitiveness in both local and international markets.
The direct consequence for businesses will be higher production costs, which may result in an increase in the prices of goods and services.
This price increase could, in turn, affect the purchasing power of consumers, leading to inflationary pressures.
However, the government’s decision to shield domestic consumers from these additional burdens will help mitigate some of these negative impacts.
Gas Tariff Remains Unchanged
Despite the concerns raised by industrialists, the ECC decided against raising the gas tariff for domestic consumers. This move aims to protect the public from further financial strain in the face of rising utility costs.
This decision also reflects the government's sensitivity to the economic pressures facing the general populace, particularly in times of inflation and economic uncertainty. By not increasing the gas tariff for domestic consumers, the government is attempting to balance the financial needs of the energy sector with the socio-economic realities faced by ordinary citizens.
The decision to increase the gas tariff follows recommendations from the Oil & Gas Regulatory Authority (OGRA), which called for a significant increase in gas prices to generate approximately Rs. 847.33 billion during the current fiscal year. The revised gas pricing structure will see the average gas price set at Rs. 1,762.51 per mmbtu for Sui Southern Gas Company (SSGC) and Rs. 1,778.35 per mmbtu for Sui Northern Gas Pipelines Limited (SNGPL).
