Key Takeaways
- Petroleum Division seeks IMF approval for a single gas tariff starting July 1, 2027.
- Rs. 162 billion subsidy will target low-income households, ending the existing cross-subsidy system.
- New tariff will replace 12 slab tariff structure with a uniform average rate of Rs. 1,708 per MMBtu.
The government of Pakistan is set to implement a single gas tariff from July 1, 2027, with the aim of ending the existing cross-subsidy system and replacing it with targeted financial assistance for low-income households. This move is part of a broader effort to align domestic energy policies with the International Monetary Fund’s (IMF) recommendations.
According to the Petroleum Division, the proposed system will allocate approximately Rs. 162 billion for targeted support, which will be determined by household income. This financial assistance is expected to be administered through the Benazir Income Support Programme, ensuring that low-income families receive direct support.
Under the new regime, the existing 12 slab tariff structure will be replaced with a uniform average tariff of around Rs. 1,708 per MMBtu. This change will significantly alter the current structure for domestic consumers, as higher-paying consumers will see their gas costs reduced, while those currently paying protected rates may face significant increases.
The government has already submitted a summary to relevant forums seeking support for the proposed subsidy mechanism. However, approval from the IMF is crucial before the new tariff system can be implemented. The Petroleum Division expects this change to make gas subsidies more targeted and transparent, reducing the distortions caused by the current cross-subsidy model.
The existing cross-subsidy system, estimated at around Rs. 162 billion for the fiscal year 2026-27, has seen higher-paying consumers subsidize cheaper gas for protected households. These protected households currently pay rates as low as Rs. 200 per MMBtu for consumption up to 0.25 hm³, with rates increasing to Rs. 350 for consumption up to 0.9 hm³. Higher-paying consumers, including commercial and industrial users, currently pay significantly higher rates, ranging from Rs. 2,300 to Rs. 4,400 per MMBtu.
The new system aims to separate the gas price from the social protection mechanism, ensuring that financial assistance is based on income rather than consumption. This change is expected to benefit industrial and commercial consumers, whose existing rates are above the proposed average. However, it could lead to significant increases in gas prices for households currently paying protected rates, with the extent of relief depending on their eligibility under the new income-based subsidy.
The government is optimistic that the proposed system will streamline the distribution of subsidies, making them more efficient and transparent. However, the key challenge lies in establishing an effective income-based mechanism before the current consumption-based protection is withdrawn. The Petroleum Division is working closely with relevant government bodies and the IMF to ensure a smooth transition to the new tariff system.
The implementation of the single gas tariff is seen as a significant step towards modernizing Pakistan’s energy sector and aligning it with international best practices. The government hopes that this move will not only improve the efficiency of energy distribution but also provide greater financial relief to low-income households.
