The government has unveiled a plan to settle Rs. 1.49 trillion of Pakistan’s Rs. 3.6 trillion gas sector circular debt as authorities seek to address mounting liabilities across the energy sector.
The Petroleum Division presented the settlement plan to the Cabinet Committee on Energy, chaired by Prime Minister Shehbaz Sharif. The total gas sector circular debt comprises Rs. 1.8 trillion in principal liabilities and Rs. 1.7 trillion in late payment surcharges.
Sources of Funding
Under the proposed plan, Rs. 540 billion would come through additional dividends from Oil and Gas Development Company, Pakistan Petroleum Limited and Government Holdings Private Limited. Another Rs. 270 billion would be collected through a Rs. 5 per liter petroleum development levy on annual sales of around 18 billion liters of petroleum products.
The government also plans to generate Rs. 590 billion through lower liquefied natural gas cargo requirements and savings from replacing LNG with domestic natural gas. The Petroleum Division is expected to raise another Rs. 80 billion through LNG price recovery and Rs. 15 billion through take-or-pay claims.
Drivers of Circular Debt
The circular debt has been driven by several factors, including tariff differentials, unpaid receivables and policy-related costs. According to the report presented to the committee, the tariff differential accounts for Rs. 1.4 trillion, while power sector receivables stand at Rs. 123 billion, sales and income tax receivables at Rs. 211 billion and litigation costs at Rs. 58 billion.
The debt burden has also been aggravated by expensive LNG supplies. Gas utilities diverted costly imported LNG toward domestic consumers, while disruptions to LNG supplies under Pakistan’s agreement with Qatar led the country to arrange spot cargoes at significantly higher prices.
Spot LNG prices reached as high as $19 per million British thermal units, compared with around $12 to $13 for regular Qatar LNG cargoes. The expensive supplies were provided to power plants, with the resulting costs recovered from electricity consumers.
The circular debt has also affected exploration companies including OGDCL and PPL, as Sui gas companies accumulated unpaid bills for gas supplied to consumers.
