ISLAMABAD (Dunya News) - Pakistan is preparing to present the International Monetary Fund (IMF) with a three-year strategy to settle the gas sector’s circular debt, which has climbed to around Rs3.6 trillion ($12.9 billion).
According to reports, the proposed plan is part of the government’s efforts to fulfil a key IMF requirement ahead of the economic review talks scheduled for the last week of September.
Officials familiar with the matter said the Finance Ministry is expected to brief the IMF on the proposed debt settlement mechanism during the upcoming review. The final framework, however, will be worked out after consultations with the international lender.
The gas sector’s outstanding circular debt comprises approximately Rs2.1 trillion in accumulated interest and Rs1.5 trillion in principal. Officials attributed the buildup to tariff differentials, unpaid receivables and various policy-related costs.
A report submitted to a government committee showed that the tariff differential accounts for around Rs1.4 trillion of the liabilities. Power sector receivables stand at Rs123 billion, while sales and income tax-related receivables total Rs211 billion. Litigation-related costs have added another Rs58 billion.
The sector’s financial problems have also been aggravated by the high cost of imported liquefied natural gas (LNG). Gas utilities supplied expensive imported LNG to domestic consumers, while interruptions in LNG supplies under Pakistan’s agreement with Qatar forced the country to secure spot cargoes at significantly higher prices.
Under the proposed settlement plan, around Rs840 billion could be generated through dividends from gas companies, while another Rs270 billion is expected to come from the petroleum levy.
The government is also considering reducing the debt burden by Rs310 billion through the postponement of additional LNG cargoes from Qatar.
A further Rs15 billion could be recovered through take-or-pay arrangements in the power sector, while Rs60 billion is expected to be generated through the complete recovery of LNG-related costs.
The proposed strategy also includes settling the interest component of the accumulated circular debt.
However, recovering the full cost of LNG could result in higher gas prices for consumers, potentially adding to inflationary pressures.
Officials are expected to discuss the implications of the proposed measures with the IMF before finalising the three-year settlement framework.