ISLAMABAD – The federal government has decided to introduce a three-year plan to eliminate the gas sector’s circular debt of Rs3.6 trillion in an effort to meet a key condition agreed with the International Monetary Fund (IMF).
The sources said that the Ministry of Finance will brief the IMF on the proposed settlement plan during virtual economic review talks scheduled for the last week of September.
The gas sector’s circular debt has risen to Rs3.6 trillion, including Rs2.1 trillion in accumulated interest and Rs1.5 trillion in principal, sources said.
Under the proposed plan, the government aims to reduce the circular debt by Rs528 billion in the first year, Rs473 billion in the second year and Rs433 billion in the third year.
The plan will be shared with the IMF during the upcoming review talks, with the final mechanism to be decided after consultations with the Fund.
Sources said the government plans to use Rs840 billion in dividends from gas companies to help reduce the circular debt. Another Rs270 billion is expected to be generated through the petroleum levy.
The proposed plan also envisages deferring additional liquefied natural gas (LNG) cargoes from Qatar, which is estimated to reduce the circular debt by Rs310 billion.
The government expects to save another Rs15 billion through the take-or-pay mechanism in the power sector, while Rs60 billion is projected to be recovered through full cost recovery of LNG.
The plan also includes settling the interest component of the gas sector’s circular debt.
However, sources warned that full recovery of LNG costs could lead to higher gas prices, potentially increasing the financial burden on consumers.
The government is expected to present the complete details of the settlement plan to the IMF during the September review talks.
The final decision on the proposed measures will be taken after discussions with the Fund.
