The government has taken a major step to address the growing circular debt in Pakistan’s gas sector, which has reached Rs2.8 trillion. To find a practical solution, it hired the audit firm KPMG to create a Circular Debt Management Plan (CDMP). This plan aims to be acceptable to the International Monetary Fund (IMF) and help resolve the long-standing issue.
Pakistan’s total circular debt in the energy sector now stands at Rs5 trillion. The gas sector contributes Rs2.8 trillion, while the power sector holds Rs2.3 trillion of this debt. A large part of the gas sector’s debt, about Rs800 billion, is due to Late Payment Surcharges (LPS), sources revealed.
The Sui gas companies—Sui Northern and Sui Southern—face a shortfall of Rs1,300 billion. This gap mainly results from no gas tariff increases between 2013 and 2020. Additionally, diverting costly LNG to the domestic market has worsened the circular debt problem.
To ease the burden, the government introduced an off-the-grid levy on the Rs3,500 per MMBtu gas price for the export sector. This raised gas prices for export industries to Rs4,291 per MMBtu, or $15.38 per MMBtu. Consequently, the export sector cut its gas use by half in the north and by a quarter in the south.
This reduction has led to more expensive gas being diverted to domestic consumers, which is likely to increase the gas sector’s circular debt further. Meanwhile, the government secured Rs1,275 billion in loans from 18 commercial banks for the power sector. These loans will be repaid by electricity users through an extra charge of Rs3.23 per unit on their bills.