· The ECC has approved gas price increase across sectors, including those for the domestic consumers. The gas price increase was a demand of the IMF while it was visiting Pakistan, in a bid to arrest the circular debt buildup in the gas sector.

· Feed gas price for fertilizer companies has risen from PkR302/mmbtu to PkR510/mmbtu while fuel gas price has risen to PkR1,500/mmbtu against the previous prices of PkR1,023/mmbtu. We believe that the incremental impact will lead to FFC requiring a hike of PkR370/bag, while EFERT will require a hike of PkR299/bag.

· Gas prices for the cement sector are to be revised upwards from previous PkR1,277/mmbtu to PkR1,500/mmbtu (up 17%). Presently, no cement player in our coverage is receiving pipeline gas to run their captive power plants, as most are dependent on (WHR, Solar, Coal, Grid).

· Steel being significantly energy-intensive (~17% of COGS for long steel) is one of the most adversely impacted sectors amidst the recent utility rate adjustments. ASTL in our universe uses gas for re-heating of billets, thus is expected to incur incremental costs of PkR250/ton as a result of the proposed 10% hike (from 1054/mmtu to 1200/mmbtu) in gas prices.

· In terms of inflation readings, an increase in gas tariffs does not have a major direct impact on the CPI reading, with a 10% increase in gas tariffs inching the reading up by ~6bps. However, the indirect impacts on prices of other goods, such as food and fertilizer, are expected to transpire in the near future. Our base estimate for Feb’23 inflation stands at 30.1%.

Courtesy- AKD Research