Pakistan seeks IMF approval for Rs1.5 trillion plan to retire gas sector circular debt

Pakistan has asked the International Monetary Fund to approve a plan to retire Rs1.5 trillion of gas sector circular debt within three years using dividends from state-owned energy companies, LNG savings and levies on petroleum products, The Express Tribune reported, citing officials familiar with the discussions.

The proposal was discussed during the latest review talks under the $7 billion IMF bailout programme, but the Fund has not yet taken a final decision. The government is seeking the IMF’s consent before June so that provisions can be incorporated in the next federal budget.

Officials said the total circular debt in the gas sector has reached more than Rs3.4 trillion, including about Rs1.8 trillion in principal liabilities. However, the government plans to settle around Rs1.5 trillion, as the remaining amount is tied up in tax refunds and court cases.

Under the proposal, payments of the Rs1.5 trillion principal would require oil and gas companies to waive over Rs1.6 trillion in accumulated late payment surcharges linked to delayed settlements.

The government intends to raise about Rs850 billion through dividends and additional dividends from Oil and Gas Development Company, Pakistan Petroleum Limited and Government Holdings Private Limited. Authorities are also planning to utilise nearly Rs400 billion in LNG-related savings as part of the settlement strategy.

Another component of the plan includes imposing a Rs5 per litre levy on petrol and diesel to generate funds for debt repayment. Officials said the government has already built roughly Rs4 per litre into petrol prices and about Rs1 per litre into diesel for this purpose.

The finance ministry is currently collecting about Rs12 billion per month through this levy. However, sources said there are internal discussions over whether these funds should be specifically allocated for circular debt retirement.

During negotiations, the IMF raised concerns about using LNG savings for debt settlement instead of reducing energy costs for consumers.

The Fund also expressed reservations about extracting Rs850 billion in dividends from public sector energy companies, warning that such measures could affect their financial health and future investment plans.

Government officials told the IMF that clearing circular debt would also benefit exploration and production companies by resolving outstanding receivables that have accumulated over time.

The IMF also sought clarification on how the proposed dividend extraction might affect minority shareholders of the listed energy companies.

Officials said the circular debt largely stems from gas price differentials and delayed tariff adjustments. Pakistan has assured the IMF that it will continue periodic gas price revisions in July and February each year to prevent further accumulation of liabilities.