ISLAMABAD: The International Monetary Fund (IMF) has sought restrictions on the federal government’s power to reduce gas prices to prevent further growth in circular debt.
The demand came during the IMF’s reviews of Pakistan’s Extended Fund Facility (EFF) and Standby Arrangement (SBA). The IMF noted that the growing tariff differential was contributing to rising circular debt in the gas sector.
According to officials, the Cabinet Committee on Energy (CCOE) was informed that the IMF had called for amendments to the Ogra Ordinance 2002. The proposed changes aim to limit the government’s ability to lower consumer gas tariffs after the Oil and Gas Regulatory Authority (Ogra) issues its determinations.
The government has also committed to timely revising consumer gas prices after receiving Ogra’s determinations. It must also report compliance with the agreed measures to the IMF.
IMF Pushes Gas Tariff Reforms
Pakistan amended the Ogra Ordinance 2002 in March 2022 following the IMF’s demand. The amendment strengthened the mechanism for timely gas price revisions based on Ogra’s determinations. The government also agreed to revise gas prices in line with Ogra’s recommendations to prevent further accumulation of circular debt.
Meanwhile, authorities allowed the diversion of re-gasified liquefied natural gas (RLNG) to the domestic sector from November 2023. The government introduced price revisions to recover the cost of RLNG supplied to domestic consumers.
Unlike the power sector, where the government provides budgeted subsidies to cover tariff differences, Pakistan’s gas sector relies largely on a cross-subsidy mechanism.
Under this arrangement, lower tariffs for vulnerable domestic consumers increase prices for other categories, including industrial, commercial and compressed natural gas (CNG) consumers.
The absence of a dedicated budgetary subsidy has also restricted the government’s ability to reduce tariffs for these consumer groups.
Gas Circular Debt Reaches Rs3,288 Billion
Pakistan’s gas supply chain consists of two major components: the cost of gas at the wellhead and the tariff paid by end consumers.
Ogra determines wellhead gas prices under applicable petroleum policies and calculates the revenue requirements of Sui gas companies. However, the federal government retains authority over consumer gas tariffs under the Ogra Ordinance and related rules.
Ogra carries out these determinations twice a year. It then refers the revenue requirement to the federal government, which has 40 days to advise on the issuance of the relevant notification.
The government followed this process more consistently until fiscal year 2013. However, it later stopped implementing tariff revisions in line with Ogra’s determinations and did not allocate a tariff differential subsidy in the annual budget.
A similar gap emerged in the RLNG sector from FY2018-19. At the time, the government diverted RLNG to domestic consumers to meet higher winter demand without establishing a firm mechanism to recover its full cost.
A 2024 review by consulting firm KPMG found that tariff differentials caused by lower consumer prices represented a major component of gas-sector circular debt.
As of June 30, 2025, the gas-sector circular debt stood at Rs3,288 billion, including Rs1,468 billion in interest costs.
Under its IMF commitments, Pakistan agreed to define gas-sector circular debt precisely, verify debt stock figures, establish monthly reporting and prepare a circular debt management plan.
The plan requires regular adjustments to end-user gas prices according to established formulas. It also includes reforms aimed at reducing costs and cutting unaccounted-for-gas (UFG) losses.
Pakistan Works on Circular Debt Management
The Petroleum Division sought World Bank assistance to develop a framework for managing gas-sector circular debt. Following months of consultations, data analysis and meetings, the World Bank helped the division establish a precise definition of gas circular debt and develop a debt reporting tool.
The tool was handed over to the Sui companies in May 2025.
Meanwhile, state-owned exploration and production companies supply a significant share of Pakistan’s indigenous gas. These companies include Oil and Gas Development Company, Pakistan Petroleum and Government Holdings Private Limited.
The government has the first right to purchase domestically produced natural gas through nominated buyers, mainly the Sui distribution companies. The gas then reaches consumers through distribution networks or goes directly to power and fertiliser plants.
However, weak bill recovery by Sui Southern Gas Company and Sui Northern Gas Pipelines, along with problems in the power sector, continues to increase gas-sector circular debt.
The growing receivables have also affected the financial capacity of exploration and production companies to invest in new projects. Officials have warned that failure to address the issue could eventually increase losses and place a greater burden on the national exchequer.
The government has also been working on broader reforms in the petroleum sector. Prime Minister Shehbaz Sharif formed a committee to recommend structural reforms, which submitted its report to the Prime Minister’s Office on November 13, 2025.
The committee also prepared a circular debt settlement plan proposing the settlement of Rs1,493 billion over five years. Authorities presented the proposed plan to the prime minister on December 31, 2025.
