Karachi, September 18, 2018 (PPI-OT): The (reconsidered) first tough decision
ECC on Monday approved structural increases in gas prices across all sectors. These changes, effective immediately, are expected to be ratified by the federal cabinet today following which the Oil and Gas Regulatory Authority (OGRA) will issue a formal notification.
Given the economy’s health, these increases were inevitable and long speculated. Key measures include:
For domestic consumers, the imposition of tariff changes has been spread out over six slabs (previously three) keeping a progressive approach based on consumption. Rate hikes for domestic consumers range between 10% and 143%. Rate hikes for domestic consumers are significantly lower than those announced earlier this month, where the domestic sector was to take a hit of 26-180%, while the percentage increase to be applicable was higher for lower consumption slabs (i.e. typically lower income consumers). The ‘low-income class’ – defined as falling within consumption of up to 100m3 (66% of the total) – is also a major consumer of Liquefied Petroleum Gas (LPG), and will also benefit from the reduction in prices by around Rs200 per cylinder of LPG.
The latest policy transfers a significant portion of the burden to industrial and commercial sectors, where for the former the tariff increase is within a range of 30-57% (previously 26-27%), while for the latter the rate hike is 40% (previously 26%).
Export oriented (zero-rated) sectors such as textile, leather, carpets, and sports and surgical goods have been exempt these increments and will be categorized separately. Word on the street suggests that there is a possibility that the upcoming finance bill amendments might provide subsidized RLNG to Punjab-based textiles, while there is also news of a possible reduction in electricity tariffs for the sector to make textile exports more competitive.
Overall, the new rates are expected to have a negative impact on the market by increasing the cost of doing business in Pakistan. Moreover, it will add on to the inflationary pressures in the economy, where CPI for 2MFY19 stood at 5.84% YoY, while our estimates suggest that the figure could touch close to 7% for FY19.