EDITORIAL: The energy sector mess is becoming increasingly complex. First, to address power sector circular debt, an exorbitantly high levy was imposed on captive gas users — but that proved insufficient.
The government then sanctioned a higher petroleum levy (PL) on petrol and diesel to cover power sector subsidies. However, in the process, gas circular debt continued to grow, and has now crossed the Rs3 trillion mark, including late payment surcharges. The government is now backing away from increasing gas prices for domestic users and instead plans to raise the PL to cover the gas pricing gap and associated costs.
The PL is not only presented as a tool to curb power and gas circular debt; it is also being justified as a means to finance road infrastructure in Balochistan. It is only a matter of time before additional reasons are cited to further increase the PL. The reality is that higher PL is driven by fiscal considerations.
Depressed international oil prices — currently hovering below USD 60 per barrel — have created an opportunity to raise PL without increasing domestic petroleum prices or triggering a significant public backlash.
The federal government has increasingly relied on PL instead of GST because, unlike GST where around 57.5 percent of proceeds go to the provinces, PL revenues accrue entirely to the federal government. This explains why GST on petroleum products is currently zero, while PL stands at around Rs80 per litre, with authorisation to raise it to Rs100 per litre. The rest is largely political spin.
In the case of gas, any increase in consumer prices benefits gas companies and the provinces, while the political cost of public backlash is borne by the federal government.
Instead of taking the difficult but correct decision, the government prefers to retain control through indirect taxation. The right approach would be to increase gas prices to curb inefficient usage. Fair pricing is a core reform requirement but, as usual, the government is juggling and spinning.
There are only around 10 million gas consumers, while petroleum products are used in virtually all vehicle and internal combustion equipment — a much larger base. Why should petroleum consumers subsidise gas users? Why should gas companies’ balance sheets continue to deteriorate? And, why does the government use pricing distortions to shift the burden of its inefficiencies onto consumers? These are tough questions that require plausible answers for reaching holistic solutions. Instead, the government continues to rely on politically convenient patchwork measures while complying with IMF conditions. This is not reform. Without genuine reform, ad hocism will persist, and policy inconsistency will remain the norm.
Copyright Business Recorder, 2026