ISLAMABAD: To address Pakistan’s substantial gas circular debt, the International Monetary Fund (IMF) has pointed out that vigilant on-time adjustments to gas tariffs are crucial and these adjustments should align with the financial requirements of the gas sector while ensuring a progressive tariff system especially in the upcoming tariff revisions in mid-2025 (July 1, 2025, and February 15, 2026).
This was stated in the IMF report “First Review Under the Extended Arrangement Under the Extended Fund Facility, Requests for Modification of Performance Criteria and Request for an Arrangement Under the Resilience and Sustainable Facility” released on Saturday.
The IMF noted that the gas adjustment framework has automatic notification in law, but this has not been operationalised. The year 2022 amendment to the Oil and Gas Regulatory Authority (OGRA) Ordinance mandates automatic notification of the OGRA within 40 days of determination of revenue requirements in respect of category-wise consumer gas prices in case government takes no action.
Continued timely gas tariff adjustments contained net Circular Debt (CD) flow to Rs 28 billion during July-December 2024, limiting the stock to Rs 2,842 billion (2.7 percent of GDP), a provisional estimate, the IMF report stated.
The authorities were advised to maintain momentum on the significant progress over the past year in developing a well-defined data set of CD statistics for monitoring purposes. The next step would be the start of regular quarterly CD reporting, creating the basis for a gas sector CD Management Plan (CDMP). These tools would allow the authorities to pinpoint the sources of CD flow and further guard against fiscal and financial risks in the sector.
Pakistan has committed to continue to work to develop an implementation strategy for Weighted Average Cost of Gas (WACOG). Once implemented, the WACOG will allow full cost recovery of more expensive imported RLNG and provide a more adequate price signal to guide gas consumption across all sectors and help reduce power generation costs. The government will also work toward adopting a new, targeted and budgeted gas subsidy framework that will allow us to eliminate the current cross-subsidy system
The government has hired private consultants and international development partners to devise a precise definition of CD for the gas sector; compile detailed and verified gas CD stock statistics; establish a monthly gas CD flow reporting system and devise a gas CDMP.
The government also committed to providing development partners, including the Fund, quarterly data on CD stock and flow details and to publish initial CDMP by end-June 2025.
Copyright Business Recorder, 2025
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