The government has prepared a three-year plan to reduce the gas sector’s circular debt of Rs. 3.6 trillion, according to sources.
The outstanding debt includes around Rs. 2.1 trillion in markup and Rs. 1.5 trillion in principal debt.
The development comes ahead of virtual economic review talks between Pakistan and the International Monetary Fund (IMF), scheduled for the last week of September. During the discussions, the Ministry of Finance is expected to brief the IMF on the government’s strategy to address the gas sector’s circular debt.
Under the three-year plan, the government aims to reduce the debt by Rs. 528 billion in the first year, followed by Rs. 473 billion in the second year and Rs. 433 billion in the third year.
To achieve these targets, the government plans to utilize Rs. 840 billion in dividends from gas companies and raise another Rs. 270 billion through the petroleum levy.
The government also plans to defer additional LNG cargoes from Qatar, a measure expected to reduce the circular debt by around Rs. 310 billion.
Other measures include using savings from power-sector take-or-pay arrangements, which could contribute Rs. 15 billion, while full LNG cost recovery could reduce the debt by another Rs. 60 billion.
The government will also address the markup accumulated on the gas sector’s circular debt as part of the plan.
However, the implementation of full LNG cost recovery could increase gas prices for consumers. The measure may therefore place additional financial pressure on households and businesses if the higher costs are passed on through gas tariffs.
The government’s three-year strategy is aimed at reducing the longstanding gas-sector debt while presenting a clear roadmap to the IMF for addressing financial imbalances in the energy sector.
