Natural gas prices went up once again, as the authorities take nothing for chance under the IMF SBA conditions. The inflationary consequences will be high – but what gets reflected is guesswork at the moment – given how the PBS has (mis) treated the last two gas tariff revisions. On the face of it, the price change taking effect from February 2024 has a higher impact for the most vulnerable segment – than the other group.
Unlike the November 2023 tariff revision, the “protected” category has also gone under the knife in February 2024 tariff revision. What exactly are the consumers falling under this category being protected from is best known to the authorities – but it clearly is not price increase. The supposed objective of introducing the protected category in February 2023 – was to keep the most vulnerable segment protected from price changes.
The idea was based on the lines of similar exercise initiated for electricity consumers almost three years ago. It is pertinent to mention that the electricity consumers in the protected category have not been subject to any base tariff revision since the concept was introduced in February 2021. And this is not even the first time that the protected natural gas consumers have to face a substantial increase in tariffs.
The previous revision in November 2023 resulted in imposition of fresh “fixed charges” that ballooned the average bill in the category by over 100 percent – despite no change in variable charges. This time around the variable charges have been revised upwards –from 40 percent to 67 percent in the protected category. The overall impact on final bills though, would be much lesser than the November 2023 increase – as fixed charges have stayed at November levels for both protected and unprotected.
Mind you, the Ministry itself puts the number of consumers in the protected category at 57 percent of all domestic consumers. In terms of variable charges, the net impact would be higher for the bottom three quintiles. That said, the PBS has mysterious ways of tabulating gas price changes – as the previous one was grossly overestimated (See: Gas tariffs: Did the PBS get it wrong again? Published December 11, 2023).
Beyond the domestic sector – there have been some bold decisions taken such as increasing the feed price for fertilizer sector, manifolds – and continuing to discourage gas use for captive power generation. The authorities plan to completely eliminate the use of captive power generation by January 2025, by equating the price of gas for captive power generation equivalent to that of LNG. Moreover, the gas reform envisages subsidization of fertilizer products through gas price cross-subsidy is scheduled to end beginning July 2024, and any subsidy will be provided explicitly in the budget. What becomes of the price for Mari linked fertilizer companies will be critical in determining the price wars that will follow in the fertilizer market.
The real test will begin when(ever) the new government takes office. Sticking to these decisions won’t be as easy for what increasingly appears to be a government on weak foundations.
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