Karachi: Economic Coordination Committee's decision to increase gas prices will help Pakistan reach an agreement with International Monetary Fund (IMF) in upcoming review scheduled in November, said Topline Securities, brokerage house, in report.

"We believe this [decision] is necessary as gas circular debt has now reached Rs 2.1 trillion and increasing at rate of Rs 350-400 billion per year as per energy minister," said Topline Securities in report.

"IMF has also been key proponent of reducing circular debt by increasing gas tariffs as it is increasing huge burden on government's fiscal account. We believe this, along with rationalisation of power tariff, will take Pakistan to staff level agreement for its upcoming November review," it said.

As per schedule, proposed increase in local gas tariff was up to 173 percent for non-protected domestic consumers, over 136 percent for commercial, 86 percent for export and 117 percent for non-export industry.

Meanwhile, Pakistani authorities are expected to meet IMF on upcoming review of $ 3-billion loan programme in November. Ministry of Finance has asked all ministries and divisions to be ready for first review of IMF Standby Arrangement to ensure successful completion of review, official sources told.

Meanwhile, brokerage house also gauged impact of gas tariff hikes on various sectors. "Increase in gas tariffs will reduce gas tariff differentials for Sui Southern Gas Company and Sui Northern Gas Company which will be cash flow positive for companies.

"Combined revenues of both Sui companies was around Rs 1.6 trillion which will improve substantially following this gas price increase as tariff differential reduces," said Topline Securities.

Moreover, gas price hike will be cash flow positive for exploration companies including Oil and Gas Development Company and Pakistan Petroleum as gas circular debt reduces, it said.

"ECC has also proposed an increase in gas prices for MARI consumers including Fertilizers which will be positive for company." "We believe gas prices hike is likely to improve SNGP's revenue stream and help to pay its debts. Thus, it will be beneficial for Pakistan State Oil's cash flows and working capital needs," said brokerage house. However, gas hike will not bode well for chemical sector, noted Topline Securities. "Chemical sector is likely to be significantly impacted as gas prices constitute major part of company's total cost and impact is unlikely to be passed on to final consumers.

We estimate EPCL to have a negative impact of Negative Rs 3.6 per share or 45 percent of earnings on 117 percent increase in gas prices from Rs 1,200 per mmbtu to Rs 26,000 per mmbtu," it shared. Moreover, impact of latest gas hike is expected to be neutral for fertilizer, textile, cement, steel and IPP sectors.

Published in The Daily National Courier, October, 25 2023

Like Business on Facebook, follow @DailyNCourier on Twitter to stay informed and join in the conversation.