Govt ends gas subsidy scheme for export-oriented sectors, asks them to pay market rates

ISLAMABAD: The government has ended subsidies for gas supply to five export-oriented sectors, it emerged on Friday. 

The Petroleum Division’s Directorate General Gas has informed Sui Northern Gas Pipeline Limited’s (SNGPL) managing director that no subsidy has been allocated by the government for gas supply to five export-oriented sectors for the current fiscal year.

Previously, SNGPL sought guidance from the Petroleum Division on the billing procedure for the five sectors during FY24. In response, the Division has now clarified that the approved mechanism — blending 50:50 of system gas and RLNG for nine months and 100 percent RLNG for three months — should be implemented without any subsidy.

The letter from the Petroleum Division, dated July 20, 2023, addressed to the SNGPL’s managing director, refers to the gas utility’s earlier letter — No. BD: 938 (RLNG) dated June 27, 2023 — which had requested the continuation of gas supply to five export-oriented sectors at a concessional rate in FY24.

According to the Directorate General Gas, the government has not allocated any subsidy for the gas supply to these export-oriented sectors in the current financial year. As a result, SNGPL is directed to raise invoices to these sectors as per the previously approved mechanism by the cabinet.

Under the approved mechanism, the five export-oriented sectors will receive a blend of 50:50 system gas and Re-Gasified Liquefied Natural Gas (RLNG) for a period of nine months, spanning from March to November. During the remaining three months of the year, these sectors will be provided with 100 percent RLNG without any subsidy.

The decision comes as the government continues to grapple with economic challenges and strives to manage the energy sector efficiently. It also comes as the government takes measures to implement the Standby Arrangement with the International Monetary Fund (IMF). Reports stated earlier that the government agreed to address the circular debt in the gas sector — which stood at Rs 577 billion — by hiking gas prices by up to 40 percent and ending subsidies. 

The State Bank of Pakistan (SBP) had also previously advised the government to end gas subsidies to prevent the circular debt, defined as a cash shortfall across the sector when the gas purchaser fails to pay the gas provider, from ballooning further. 

The five export-oriented sectors are likely to face increased operational costs due to the absence of subsidised gas supply. This decision may have implications for their competitiveness in the international market and might prompt them to explore other cost-saving measures.

Sui Northern Gas Pipeline Limited, as the major gas distribution company in the northern region of Pakistan, will be responsible for implementing the approved mechanism and ensuring an uninterrupted supply of gas to the five export-oriented sectors as per the directives of the Petroleum Division.

As FY24 progresses, the government’s decision regarding the allocation of subsidies for various sectors will continue to shape economic activities and have an impact on businesses across the country.

The Petroleum Division’s decision highlights the ongoing efforts of the government to streamline energy subsidies and ensure a sustainable energy sector in the face of fiscal challenges. The burden of increased costs for the export-oriented sectors now rests on their ability to adapt and navigate these changes effectively.