Gas tariff hike to fuel inflation.

KARACHI -- The announcement of a massive hike of up to 193% in gas tariff for different sectors of the economy and households is feared to accelerate the already high inflation to 24.5% in the current fiscal year as industrialists are expected to revise up their product prices to pass on the impact of high costs to end-consumers.

The industries that may resort to price increase include fertiliser, cement and steel, which will make agricultural production and construction material more expensive.

'With the current inflation rate standing at 31.4% as of September 2023, we anticipate that, taking this effect (gas price hike) into account, the average Consumer Price Index for FY24 will likely reach 24.5% year-on-year,' said Arif Habib Limited (AHL) in a detailed commentary on Tuesday.

The inflation forecast is higher than the State Bank of Pakistan's (SBP) projection of 20-22%. The central bank governor has said that the expected gas price hike has been incorporated into the inflation forecast.

The caretaker government has increased gas tariff with effect from November 1, 2023 just before the first IMF review under the $3 billion short-term loan programme. This is the second gas price increase in 10 months.

The gas price hike is a condition attached to the loan programme. It may pave the way for the release of second IMF tranche of $700 million.

Fertiliser sector

Feed and fuel stock prices are forecast to increase to Rs580 per million British thermal units (mmBtu) from the current price of Rs510, and to Rs1,580 per mmBtu from the current price of Rs1,500, respectively.

Earlier, the Oil and Gas Regulatory Authority (Ogra) had notified revised gas prices in February 2023 for consumers of Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL), after which Fauji Fertiliser Bin Qasim Limited (FFBL) and Engro Fertilisers jacked up fertiliser prices.

With further revision in feed and fuel prices, the impact will be minimal. For Engro, the impact will be lower due to its partial gas dependency, hence 'the company would need to increase prices by Rs98/bag to completely pass on the impact.'

For FFBL, the effect will primarily be on its feed gas, for which 'the impact of Rs79/bag for urea and Rs37/bag for DAP (di-ammonium phosphate) will have to be passed on.'

If Ogra notifies a revision in feed and fuel prices for Mari network, the impact will be significant. Fauji Fertiliser Company (FFC) receives feed and fuel gas at Rs302/mmBtu...