Govt plans petroleum levy hike to address Rs2.9trn circular debt

To address the growing circular debt, the federal government is mulling to hike the petroleum levy from Rs60 to Rs80 per litre.

According to a report by The News, authorities are also contemplating raising the gas tariff beyond the revenue requirements of gas companies to manage the circular debt, which has reached Rs2.9 trillion in the gas sector.

The government plans to utilise the Gas Infrastructure Development Cess (GIDC) held by the Finance Division. Officials are exploring options to partially address inter-corporate debt through cash payments and book adjustments, similar to the approach taken by former finance minister Ishaq Dar in 2013, who settled Rs480 billion in circular debt owed to Independent Power Producers (IPPs).

The Finance Ministry, adhering to International Monetary Fund (IMF) guidelines, has refused to allocate a budgetary subsidy for FY25 to cover the Rs260 billion loss from the non-recovery of RLNG diversion to domestic consumers. 

As a result, the government has tasked the Petroleum Division with providing practical suggestions to tackle the circular debt.

Revenue collected through the petroleum levy is currently used for budget deficit financing. Increasing the levy by Rs20 per litre could serve the same purpose. However, a new act would need to be passed by the National Assembly for a special levy aimed at retiring circular debt in the gas sector.

Officials have noted that amendments to the GIDC Act would be necessary to utilize the collected funds for addressing the circular debt. 

The government has collected Rs350 billion from various companies under GIDC, with an additional Rs400 billion yet to be recovered from the fertilizer and Compressed Natural Gas (CNG) sectors.

The Petroleum Division has suggested maintaining the natural gas sale price from July 1, 2024, despite the Oil and Gas Regulatory Authority’s (Ogra) recommendation for a 10% system gas price reduction. This approach could reduce the prior years’ shortfall of Rs1,500 billion by Rs100 billion over time.

The government may also keep gas prices stable for the fertilizer sector but plans to raise the gas price for captive power plants to Rs2,900-3,000 per MMBTU from the current Rs2,750 per MMBTU, in line with IMF directives.