ISLAMABAD – The government of Pakistan is exploring several options to address the increasing circular debt, including increasing petroleum levy on all POLs from the current Rs60 to Rs80 per litre.
Ahead of budget, authorities are also considering to impose extra levy on petroleum products and raising gas tariffs beyond the revenue needs of gas companies.
To deal with circular debt, which now touched Rs2.9 trillion in gas sector, the government plans to utilize Gas Infrastructure Development Cess (GIDC) funds currently held by the Finance Division.
Officials are also considering options to reduce inter-corporate debt partly in cash and partly through book entries, similar to method used in 2013 by former finance minister Ishaq Dar to clear circular debt in the power sector.
The finance ministry, in line with IMF directives, has decided not to allocate budgetary subsidies for the upcoming fiscal year to offset the Rs260 billion loss from the non-recovery of RLNG diversions to domestic consumers, per reports.
It was reported that Petroleum Division was given task with proposing practical solutions to address the circular debt issue.
Officials suggest that if the petroleum levy is increased by Rs20 per litre, the additional funds could be used to pay down the circular debt in the gas sector.
The government would need to amend the GIDC Act to use the GIDC funds, currently at Rs350 billion, collected from various companies to tackle the circular debt. An additional Rs400 billion in GIDC payments are yet to be recovered from the fertiliser and CNG sectors.
Experts propose that increasing the gas tariff beyond the revenue requirements of gas companies could generate surpluses to gradually reduce the circular debt, but this would require the political will of the government. Additionally, the government is considering maintaining natural gas prices from July 2024, instead of implementing the recommended 10% reduction, to help offset the Rs1.5 trillion shortfall.
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