Pakistan's Gas Merit Order Revamp: Boosting Economy, Addressing Circular Debt, and Fostering Competitiveness

In a pivotal move aimed at revitalizing its economic landscape, the Pakistani government has announced a significant restructuring of its gas merit order, placing domestic, commercial, and industrial sectors at the forefront of its allocation priorities. Approved by the Special Investment Facilitation Council (SIFC), this strategy not only seeks to invigorate economic activities but also to tackle the persistent issue of circular debt that has long plagued the nation. As of February 19, 2024, the decision is set to redefine the distribution landscape, ensuring a more equitable gas tariff for both export and non-export industries, while promising domestic and commercial sectors a guaranteed 8 hours of gas availability.

Strategic Reforms and Their Economic Implications

The government's approach to reshaping the gas allocation hierarchy is twofold: firstly, to stimulate economic growth by ensuring critical sectors have the fuel needed to operate efficiently, and secondly, to mitigate the burgeoning circular debt through strategic allocation and pricing adjustments. By equalizing gas tariffs between export-oriented and domestic industries, the government aims to create a level playing field, encouraging productivity and competitiveness across the board. With sectors such as power, fertilizer, captive power plants, cement, and compressed natural gas (CNG) now repositioned within the new order, the implications for Pakistan's industrial output and economic stability are profound.

Operational Excellence and Efficiency Measures

The Sui Southern Gas Company (SSGC) has emerged as a central figure in the government's ambitious plan, undertaking substantial rehabilitation works to enhance the distribution network's reliability. Achieving a remarkable 96% of its yearly targets, with specific highlights including a 97% completion rate in Karachi, 94% in Interior Sindh, and an impressive 100% in Balochistan, the SSGC has laid the groundwork for a more efficient and robust gas supply system. This operational excellence, exemplified by the completion of a record 735-km of rehabilitation works in the fiscal year 2022-23 and significant reductions in unaccounted-for gas (UFG), underscores the company's commitment to supporting the government's economic and environmental objectives.

Addressing Fertilizer Price Disparities and Circular Debt

Amid these sweeping reforms, the government has also turned its attention to the fertilizer sector, recognizing the need to prevent windfall profits and ensure fair pricing for agricultural producers. Discussions are underway to adjust gas prices for six fertilizer plants, a move prompted by recent price increases for four such plants that highlighted existing disparities. With the potential adjustments and the application of the Gas Development Surcharge (GDS) for farming-related purposes, the government is poised to create a more equitable and sustainable agricultural support system. This initiative, coupled with efforts to limit LNG diversion to the domestic sector, represents a comprehensive strategy to address circular debt and foster a more resilient economy.

In conclusion, the Pakistani government's decision to revamp its gas merit order reflects a strategic pivot towards bolstering economic activity, enhancing industrial competitiveness, and confronting the longstanding challenge of circular debt. By prioritizing domestic, commercial, and industrial sectors, and implementing measures to ensure equitable gas distribution and pricing, the government is laying the foundation for sustained economic growth and stability. As these reforms unfold, the anticipation of their positive ripple effects across various sectors of the economy underscores the significance of this landmark decision.