Pakistan’s gas sector circular debt has surged to Rs3,200 billion, up from Rs2,600 billion, primarily due to a significant increase in the Late Payment Surcharge (LPS), which now stands at Rs1,450 billion.
According to officials, the remaining Rs1,750 billion of the debt includes approximately Rs210 billion due to income tax and GST, while the actual stock of circular debt is estimated at Rs15 billion.Â
The government plans to waive the LPS, arguing that the debt was incurred between government-owned entities, exploration and production (E&P) companies and Sui gas companies, without borrowing from banks. However, Pakistan State Oil (PSO), which borrowed from banks to meet its LPS obligations, will be required to pay its share of the surcharge. The government also intends to write off the Rs210 billion in income tax and GST liabilities.
To retire the Rs1.5 trillion circular debt, the Task Force on Energy, in collaboration with KPMG and the Petroleum Division, has proposed a series of measures. These include imposing a petroleum levy of up to Rs5 per litre on petrol and diesel, diverting 35 LNG cargoes in 2026, and utilising dividends from public sector oil and gas companies, with a cap on these at budgeted levels.
The plan aims to reduce the fuel import bill by over $1 billion and generate Rs160 billion annually through LNG cargo diversion to help clear the gas circular debt. The proposed petroleum levy could raise Rs90 billion per year, and the dividends from public sector entities are also expected to contribute to debt reduction over the next five years.
The gas sector circular debt management plan was presented to Prime Minister Shehbaz Sharif on December 31, 2025. Subsequently, the prime minister formed a 17-member committee, headed by Deputy Prime Minister Senator Ishaq Dar, to review the plan. The committee has yet to hold its first meeting, but it will determine the final size of the petroleum levy, ranging from Rs3 to Rs5 per litre, and the timeline for eliminating the circular debt.
In the meantime, the government reduced the cost of RLNG diversion to the domestic sector from Rs242 billion to Rs185 billion, saving Rs57 billion, which was passed on to consumers as relief. Additionally, improvements in the recovery of gas bills, amounting to Rs61 billion (Rs13 billion by Sui Northern and Rs47 billion by Sui Southern), have helped offset some of the previous years’ losses.
