Brace yourselves, gas consumers, because changes are on the horizon! The government is poised to overhaul how gas prices are determined, potentially impacting your monthly bills. This shift aims to bolster the financial stability of gas utilities, but what does it really mean for you? Let's dive in.
The current system, with its six-monthly tariff revisions, is about to be replaced with a quarterly model, mirroring the approach used in the power sector. This move is designed to help public gas utilities, like Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC), manage their finances and combat the growing issue of circular debt. Think of it as a financial health checkup for these essential services.
But here's where it gets controversial: gas companies are also pushing for the ability to automatically pass on the cost of energy components to consumers, similar to how electricity firms operate. Currently, the Oil and Gas Regulatory Authority (Ogra) holds public hearings and then submits its decisions to the federal government, which sets the final prices. The government then announces gas tariffs twice a year, applying them to different consumer groups. This includes cross-subsidies, where some consumers shoulder a greater cost to subsidize gas for lower-income households.
For the current year, the revised gas tariffs have already been set, effective from July 1, 2025. The Petroleum Division has requested Ogra to propose changes that would lead to quarterly revisions instead of the current biannual ones. Ogra is expected to present its report to the federal cabinet before the end of November.
Adding another layer of complexity, gas utilities want to adopt a monthly fuel cost adjustment mechanism, similar to the power sector. Under this system, the National Electric Power Regulatory Authority (Nepra) holds public hearings, and changes in fuel costs are passed on to electricity consumers each month. This is an automated process with no government involvement.
And this is the part most people miss: the cost of gas accounts for approximately 90% of the total consumer price. Gas companies argue that the government should allow the regulator to pass on these costs monthly. According to the Petroleum Division, the delayed notification of revised gas prices harms the financial health of public utilities, contributing to the rise in circular debt.
Furthermore, the government is considering eliminating cross-subsidies in the gas sector. Instead, they plan to implement a budgeted subsidy. Currently, exploration and production companies are owed billions of rupees by gas utilities. This issue was discussed with the International Monetary Fund (IMF) under the Resilience and Sustainability Facility. The goal is to replace cross-subsidies with a direct subsidy based on consumer income levels, using the Benazir Income Support Programme (BISP) as a model. The Petroleum Division informed the cabinet that a new system is likely to be developed by 2026, with advisory firm KPMG and a dedicated group working on replacing cross-subsidies to revitalize the gas sector.
Residential consumers have benefited from a cross-subsidy of over Rs150 billion, funded by higher tariffs on captive power plants, industrial, and commercial consumers. In line with IMF reforms, a levy has been imposed on captive power plants. This has increased gas prices for these plants, reduced consumption, and diminished the ability to cross-subsidize residential consumers.
What do you think about these proposed changes? Do you agree with the shift to quarterly revisions and the potential for monthly fuel cost adjustments? Are you concerned about the elimination of cross-subsidies? Share your thoughts in the comments below – let's get a discussion going!
