ISLAMABAD – Gas sector’s circular debt stands at Rs. 3.3 trillion, with a principal amount of Rs 1.7 trillion and a late payment surcharge of Rs 1.5 trillion, as of the end of June 2025.
Gas sector deficit emerged in 2016 upon importing RLNG due to the depleting domestic gas sources. Pakistan’s gas sector supply mix includes domestic natural gas and imported RLNG to meet the demand of households, power sector, commercial, and industry. The reliance on imports broadened the price-cost gap as the household and industrial tariffs remained flat for around two years. Operational losses and shortfalls in utilities collections added to the sudden rise of gas sector debt. According to the Pakistan Economic Survey 2024-25, the household consumption of RLNG is only 1MMCFD (0.1%), while the power sector (62.2%) and industries (26.6%) are the major consumers; any failure to recover in these sectors results in the accumulation of debt in the gas sector.
The government plans to pay the principal debt amount, i.e., Rs 1.7 trillion, in the next 6 years, by raising Rs 540 billion through a Rs 5 increase in the petroleum levy, Rs 680 billion from oil and gas companies’ dividends, and Rs 415 billion in savings from reduced imported LNG cargoes.
While this proposed plan, if approved by the cabinet and the IMF, may repay the principal amount, it will only serve as an accounting adjustment, not a structural reform. When using state-owned enterprises’ dividends is just a short-term approach that limits reinvestment capacity, and the plan does not address the root causes of the accumulating circular debt. In the past, tariff adjustments were delayed to maintain the low-cost prices to subsidized consumers, but, government has lately been timely in adjusting the tariff rates in an attempt to make prices cost-reflective. IMF country review report notes that timely semi-annual tariff adjustment and cost-reflective prices have slightly reduced debt. However, it is crucial to introduce reforms to improve DISCO collection and reduce losses, and involve the private sector for permanent solutions.[2]
As suggested by the PIDE report, circular debt can be addressed through targeted restructuring of government-owned gas utilities; UFG losses may be reduced by transferring the losses to the distributors, introducing a flat rate for imported RLNG shifting towards a cost-reflective pricing mechanism.[3] Timely semiannual tariff adjustments and limiting political discretion in pricing are essential, and involving the private sector in the LNG supply chain may ensure an efficient procurement process and market-based price recovery. PRIME
