The International Monetary Fund (IMF) has instructed Pakistan’s Petroleum Division to gradually eliminate cross subsidies, with a focus on ensuring the protection of vulnerable gas consumers through the Benazir Income Support Programme (BISP) mechanism.
The global financial institution’s strategy aims at safeguarding those most in need while aligning with economic stabilization efforts.
The directive stipulates the discontinuation of the budgeted gas subsidies starting July 1, 2024, following the government’s diversion of Re-Liquefied Natural Gas (RLNG) to domestic consumers.
Over the past two years, the government has allocated substantial subsidies to mitigate the costs associated with RLNG diversion, totaling Rs69 billion.
In response to IMF’s guidelines, the interim government adjusted gas tariffs for domestic consumers identified as ‘protected’ under the subsidy program.
These adjustments, which took effect from February 1, 2024, saw increases ranging from 40% to over 65% for various consumption brackets, with the intent to lessen the financial burden of cross-subsidies estimated at Rs100 billion.
This strategy not only seeks to realign the gas pricing to more sustainable levels but also aims to introduce a more targeted support system for low-income households. Under the proposed plan, subsidies for protected consumers would be administered through BISP or a similar framework, ensuring these households are not adversely affected by the full cost of gas.
For the fiscal year 2024-25, the government plans to recover RLNG diversion costs directly from domestic consumers via the weighted average cost of gas (WACOG) method.
This approach will be integral to the gas companies’ estimated revenue requirements, marking a significant shift towards full cost recovery and fiscal sustainability in the energy sector.
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