ISLAMABAD/LAHORE: The government has decided to abolish the 12 existing gas tariff slabs and impose a uniform price in their place.
Under the plan, protected consumers will be shifted to an income-based subsidy, and their needs will be addressed through a targeted subsidy mechanism rather than through the slab structure.
During the fourth review by the International Monetary Fund, expected between September and October 2026, the government and the Fund are anticipated to discuss and finalise a timeline for the elimination of cross-subsidy and the implementation of a single gas tariff.
The current structure divides domestic consumers into multiple consumption bands, with the rate per unit rising as monthly usage increases. The design was intended to be progressive: households consuming small volumes pay a low rate, while heavy users pay substantially more, with the higher bands cross-subsidising the lower ones.
In practice, the multiplicity of slabs has produced two recurring difficulties. The first is the sharp cliff effect at band boundaries, where a marginal increase in consumption can push a household into a higher slab and produce a disproportionate jump in the bill. The second is that consumption is an imperfect proxy for income — a large low-income household may consume more than a small affluent one — so the subsidy does not reliably reach its intended recipients.
Moving to a uniform tariff paired with an income-tested cash subsidy is designed to separate the two functions. The price signal would be applied consistently to all consumers, while assistance would be delivered directly to identified households through a transfer mechanism rather than embedded in the tariff itself.
The infrastructure for such targeting already exists in the form of the national socio-economic registry, which maintains proxy means-tested scoring for households across the country and underpins the delivery of existing cash transfer programmes. The practical questions concern the currency of the registry data, the eligibility threshold to be applied, and the mechanism through which the transfer would be delivered to gas consumers.
Cross-subsidy in the gas sector operates in more than one direction. Alongside the transfer from higher to lower domestic consumption bands, industrial, commercial and captive power consumers have historically paid rates that support the domestic sector. Eliminating that structure would raise domestic rates while potentially easing the burden on industry.
The financial rationale lies in the sector’s accumulated shortfall. The gas companies’ revenue requirement is determined annually by the regulator, and where notified tariffs fall short of that requirement, the gap accumulates as circular debt within the gas sector — mirroring the more widely discussed problem in electricity. Bringing notified tariffs into line with determined revenue requirements is the mechanism by which that accumulation is intended to be halted.
The reform sits within the framework of Pakistan’s ongoing programme with the IMF, under which energy sector pricing has been a persistent structural benchmark across successive reviews. Timelines for tariff rationalisation are typically agreed at review stage and then implemented through notifications issued by the regulator.
For households, the practical consequence will depend on where the uniform rate is eventually set relative to the existing bands, and on whether the targeted subsidy reaches consumers at the same time the tariff change takes effect. Sequencing has been the recurring weakness in comparable transitions.
No implementation date has yet been notified.
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