The Petroleum Division will seek the International Monetary Fund's approval to introduce a single gas tariff from July 1, 2027, requiring the government to allocate around Rs162 billion to replace the existing cross-subsidy mechanism with targeted financial assistance for low-income households. The proposed reform would abolish the existing 12-slab tariff structure. All consumers would move towards a uniform average tariff of around Rs1,708 per MMBtu, while vulnerable households would receive direct financial support based on household income.

The proposal is expected to be discussed with the visiting IMF mission during the Fund's ongoing review of Pakistan's programme. Pakistan had earlier committed to the IMF to eliminate approximately Rs162 billion cross-subsidy and shift from consumption-based support to an income-based subsidy mechanism. The reform was initially linked to an earlier implementation timeline of January 1, 2027, but officials now expect the single tariff regime to be introduced from July 1, 2027.

Under the proposed arrangement, a household would no longer qualify for cheaper gas simply because its consumption falls within a protected slab. Instead, eligibility for financial assistance would depend on household income, with the support potentially channeled through the Benazir Income Support Programme (BISP). The proposed shift would fundamentally change the way Pakistan subsidises household gas.

At present, low-consuming protected consumers pay substantially lower rates, while industrial, commercial and other higher-paying consumers effectively finance part of the subsidy through higher gas tariffs. The government now wants to replace this cross-subsidisation model with a system in which the gas price is broadly uniform and social protection is provided separately. The biggest policy change would affect protected domestic consumers.

Currently, protected consumers using up to 0.25 hm³ of gas per month pay Rs200 per MMBtu, while those consuming up to 0.5 hm³ pay Rs250. Consumers using up to 0.6 hm³ pay Rs300, while those using up to 0.9 hm³ pay Rs350 per MMBtu. A low-income household would instead have to qualify for targeted assistance on the basis of income.

Their gas tariff could move sharply towards the average rate, with relief depending on whether they qualify for the new income-based subsidy. The existing cross-subsidy is estimated at around Rs162 billion for FY2026-27. Commercial consumers currently pay around Rs3,900 per MMBtu, CNG stations Rs3,750, cement manufacturers Rs4,400, while captive power consumers pay around Rs3,500.

General industry pays approximately Rs2,300 per MMBtu. This generates substantial surpluses that help finance cheaper gas for protected consumers. The proposed single tariff would effectively dismantle this transfer mechanism.

For industrial and commercial consumers, the reform could significantly reduce gas input costs because their existing tariffs are substantially above the proposed average rate. But the reform presents a different challenge for households currently paying only a few hundred rupees per MMBtu. The Petroleum Division has already moved a summary seeking support for the proposed subsidy mechanism, while approval from the relevant government forums and the IMF will be required before implementation.

The government is now banking on the new mechanism to make the subsidy more transparent and targeted while reducing distortions in gas pricing. The critical question, however, will be whether the government can establish a sufficiently accurate income-based mechanism before withdrawing the existing protection offered through consumption slabs.