Pakistan's finance, energy ministries at odds over IMF condition on gas supply cut to industrial plants

 Pakistan’s finance andenergy ministries are at loggerheads over meeting a key IMF condition to reduce gas supplies to industrial power plants by January, highlighting shortcomings in the negotiation of the USD 7 billion agreement.

During a recent meeting at the prime minister's house, the Petroleum Division, a part of the energy ministry, claimed that the finance ministry accepted the condition despite its reservations at the time of the programme negotiations, The Express Tribune newspaper reported on Saturday.

The division further claimed that abrupt disconnection may cause a Rs 427-billion loss to the government and the industries.

However, the finance ministry insisted that the Petroleum Division was fully on board at the time of the negotiations with the International Monetary Fund (IMF) and was now changing its position.

The development comes amid the energy ministry's assessment that the complete shifting of industries from gas to electricity would require about two years.

Observers opine that the standoff indicates that the Pakistani authorities did not think through before accepting the condition to disconnect gas connections by January 31, 2025.

Both the major players could not resolve the differences despite the escalation of the dispute to the level of Prime Minister Shehbaz Sharif, the paper said.

The prime minister has taken at least two meetings on the issue, while four meetings were also held with the IMF in the last week, according to sources privy to the development.

As part of roughly 40 conditions agreed in return for the USD 7 billion IMF package, Pakistan in September signed off to permanently stop the supply of gas for in-house power generation by industries. But within weeks, the ministries are quarrelling with each other.

The Petroleum Division has estimated hundreds of billions of rupees in losses if the supplies are disrupted suddenly, including the Rs 100 billion cross-subsidy that is recovered from the industrial consumers to supply gas at cheaper rates to residential consumers.

According to the IMF deal, the gas sector reforms will focus on price normalisation across sectors and captive power elimination. The global lender wants to shift the industrial consumer to the national electricity grid with the purpose of boosting declining electricity consumption and "channelling scarce gas resources to more efficient gas-based power generators and reducing power generation costs".