Govt hires audit firm to develop plan for tackling Rs2.8 trillion gas sector circular debt

The government has taken decisive steps to address the mounting circular debt in the gas sector, which has surged to Rs2,800 billion. To formulate a viable solution, the government has engaged KPMG, a well-known audit firm, to develop a Circular Debt Management Plan (CDMP) that will be acceptable to the International Monetary Fund (IMF) and capable of resolving this persistent issue, The News reported. 

The total circular debt in Pakistan’s energy sector stands at Rs5 trillion, with the gas sector contributing Rs2.8 trillion and the power sector Rs2.3 trillion. 

According to sources close to the development, a significant portion of the gas sector’s debt—Rs800 billion—has accumulated due to Late Payment Surcharges (LPS). 

The Sui gas companies, Sui Northern and Sui Southern, are facing a shortfall of Rs1,300 billion, primarily due to the lack of a gas tariff hike between 2013 and 2020. Furthermore, the cost of LNG diversion to the domestic sector has exacerbated the circular debt issue.

In an attempt to alleviate the situation, the government imposed an off-the-grid levy on the Rs3,500 per MMBtu gas rate for the export sector, effectively increasing the price of gas for export-oriented industries to Rs4,291 per MMBtu, equivalent to $15.38 per MMBtu. 

As a result, the export sector has reduced its gas consumption by 50% in the north and 25% in the south, leading to a further diversion of costly gas to the domestic market, which is expected to drive up the gas sector’s circular debt.

In the power sector, the government has secured a deal with 18 commercial banks for a loan totaling Rs1,275 billion. The funds will be repaid by electricity consumers through Debt Service Surgery (DSS), with an additional charge of Rs3.23 per unit added to electricity bills.