Islamabad: The federal government has devised a strategy to resolve the Rs 2,800 billion circular debt in the gas sector, similar to the approach adopted in the power sector — by shifting the financial burden to the consumers.

Key Measures Under Consideration

According to official sources, several proposals are under discussion, including:

• Imposing a Petroleum Levy of Rs 3 to Rs 10 per liter on petroleum products,
• Raising gas tariffs,
• Taking commercial bank loans to pay off Rs 2,000 billion of the debt stock, with repayments collected from the public via the levy over the next seven years.

The remaining Rs 800 billion, which includes surcharges and interest on delayed payments, may be partially waived or settled through alternative mechanisms.

Task Force in Action

To address this complex issue, a special task force has been formed. It includes:

• Lt. Gen. (R) Zafar Iqbal,
• Minister for Privatisation Muhammad Ali,
• Experts from CPPA, SECP, and NEPRA.

This task force is actively working on finalizing the recommendations for the economic framework needed to phase out circular debt in the gas sector.

Breakdown of the Recovery Plan

The proposed Petroleum Levy, if implemented as planned, could generate between Rs 18 billion to Rs 180 billion annually, depending on the rate per liter:

• A Rs 1/liter levy could yield Rs 18 billion per year,
• A Rs 10/liter levy could generate Rs 180 billion per year.

To pay off the Rs 2,000 billion bank loan, the government will need to collect around Rs 250 billion annually, meaning higher rates are more likely to be imposed.

Gas Tariff Revision and Subsidy Reforms

Besides the levy, the gas tariff revision is also on the table. Officials state that charging an average gas price of Rs 1,890 per MMBTU from all consumers would prevent future circular debt accumulation. However, this politically sensitive step may prove difficult to implement.

The government also plans to phase out the current Rs 160 billion cross-subsidy, which benefits both protected and unprotected consumer categories. This subsidy will be gradually removed by December 2026.

From January 2027, the government will introduce a targeted subsidy system using data from the Benazir Income Support Programme (BISP) to ensure relief reaches only the deserving segments.

What Lies Ahead?

Officials believe that without systemic reforms, simply resolving the circular debt won’t be enough. A critical question now under consideration is whether the current inefficient state-owned gas companies — like Sui Northern and Sui Southern — should continue to operate in the same way.

The task force will evaluate options such as splitting transmission and distribution systems and potentially privatizing them. The aim is to ensure long-term financial stability and prevent the re-emergence of circular debt.

Summary

Pakistan is facing a massive Rs 2.8 trillion circular debt in the gas sector, and the government is actively exploring solutions that involve burden-sharing by the public, including:

• A Petroleum Levy of Rs 3–10/liter,
• Higher gas prices,
• Ending blanket subsidies,
• Shifting to targeted subsidies,
• Taking commercial loans to clear current debts,
• And possibly restructuring or privatizing inefficient gas companies.

These measures, while potentially controversial, are considered necessary to ensure the financial health and sustainability of Pakistan’s gas sector