The federal government of Pakistan is set to phase out the long-standing cross-subsidy system for domestic gas users by 2026. In its place, a direct budgeted subsidy framework will be implemented under the Benazir Income Support Programme (BISP), aligning with broader reforms agreed with the International Monetary Fund (IMF).
Reform Mandate and IMF Commitments
Under the Resilience and Sustainability Facility (RSF) program, Pakistan has committed to revamp its gas sector by replacing inefficient subsidies with income-targeted support. The Petroleum Division has engaged global consultancy KPMG to help design the new model and has formed a dedicated task force for the initiative.
Currently, residential gas users benefit from over Rs150 billion in annual cross-subsidies, funded through elevated tariffs on industrial and commercial consumers, including captive power plants. However, recent policy shifts have added levies on these plants, increasing their costs and reducing their gas consumption—shrinking the cross-subsidy base.
Balochistan Gas Crisis and Legal Complications
During cabinet discussions, the Petroleum Division highlighted severe challenges in Balochistan, where Sui Southern Gas Company (SSGC) operates at high loss levels. Though the province receives only 111 mmcfd of gas against a winter demand of 210 mmcfd, 59% of the supply—equivalent to over 26 bcf—is reportedly lost due to theft or illegal usage.
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Despite facing Rs22 billion in unrecoverable losses, SSGC continues operations in the province, driven by court directives and the government’s socioeconomic agenda. A Balochistan High Court order from May 2023 capped gas bills at Rs5,700/month and led to the formation of a commission to recommend consumer-friendly tariffs.
Tariff Dispute and Regulatory Conflict
The commission proposed highly subsidized winter and summer rates for colder areas of Balochistan, with a maximum annual cost of Rs62,092 for average usage. However, the Petroleum Division argued that this structure clashes with the government’s notified tariff, which can go up to Rs108,441/month for high-usage consumers under the current OGRA framework.
This discrepancy led to a legal challenge by SSGC in the Supreme Court, which ordered OGRA to re-evaluate the commission’s recommendations. In its November 2024 report, OGRA clarified that no legal basis was presented by the commission for special regional tariffs, reaffirming the need for a uniform and statutory tariff framework.
What’s Next?
As Pakistan moves toward rationalizing energy pricing, the shift from blanket cross-subsidies to targeted cash transfers marks a significant structural reform. While implementation hurdles remain—especially in provinces like Balochistan—the transition is essential for reviving the gas sector’s financial viability and meeting international lending conditions.
