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Power, Gas Price Hikes Signal Further Inflation

Burden of increased tariffs for petroleum products expected to become visible in sensitive price index from next week

by Staff Report

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After the National Electric Power and Regulatory Authority (NEPRA) on Thursday raised the base power tariff by Rs. 7.91/kWh for the next fiscal year, the Oil and Gas Regulatory Authority (OGRA) on Friday announced a 45 percent increase in prices of natural gas, setting off a new round of inflation on the general public in the coming months.

According to a statement issued by NEPRA, it has raised the base power tariff—currently at Rs. 16.91/unit—to cope with a recent surge in fuel prices, capacity costs, and the impact of devaluation on the Pakistani rupee. It said that the energy purchase price for the upcoming fiscal was projected as Rs. 1,152 billion, while capacity charges—including the National Transmission and Dispatch Company and high-voltage, direct current electric power transmission cost—was projected as Rs. 1,366 billion.

Per NEPRA, the total revenue requirement of distribution companies was projected as Rs. 2,805 billion, with projected sales of 113,001GWh. Industry experts say the decision would also help the government meet requirements of the International Monetary Fund, a necessity to revive a suspended bailout program and avoid the possibility of default. “The determined tariffs have been intimated to the federal government and the uniform tariff so determined by NEPRA after incorporating the amount of subsidy/surcharges, intimated by the Government of Pakistan, is forwarded for notification,” it added.

OGRA tariffs

On Friday, OGRA similarly approved a 45 percent revenue requirement increase for the Sui Northern Gas Pipelines Limited (SNGPL), and a 44 hike for the Sui Southern Gas Company (SSGC), with effect from July 1. According to a notification, the price of gas for SNGPL consumers has been raised by Rs. 266.58/MMBTU to Rs. 854.52/MMBTU, while the price for SSGC consumers has been raised by Rs. 308.53/MMBTU to Rs. 1,007.82/MMBTU.

The regulator also clarified that previous years’ shortfall, valued at Rs. 264,894 million, had been referred to the federal government for an appropriate policy decision and was not made part of the instant determination.

Inflationary jump

The NEPRA and OGRA notification came as the Pakistani Bureau of Statistics (PBS) issued the last week’s inflation data, revealing that the Sensitive Price Index (SPI) had increased by two percent, primarily due to hikes in prices of energy and food.

According to PBS, the year-on-year increase in SPI was 20.04 percent, with the prices of 28 essential items increasing in the past week compared to the week prior. It said that the SPI increased by 1.02 percent for the lowest income group—those earning less than Rs. 17,732/month)—and by 2.44 percent for those with monthly incomes over Rs. 44,175. It said of the 51 items surveyed, the prices of 28 increased; five decreased; and 18 remained unchanged.

The government had announced the Rs. 30 increase to prices of petroleum products last week, and the impact of that policy decision would only become visible next week. The second round of price hikes announced this week would, likewise, not become fully visible until the week after next. Observers have warned the inflation data is expected to surge due to these price hikes in the coming weeks and months.

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