Shafaqna Pakistan: Pakistan is preparing to submit a three-year plan to the International Monetary Fund (IMF) to clear the gas sector’s circular debt, which has reached approximately Rs3.6 trillion ($12.9 billion).
The proposed strategy is part of the government’s efforts to meet a key IMF condition ahead of the economic review talks expected in the last week of September, according to reports.
Officials familiar with the matter said the Finance Ministry is likely to brief the IMF on the proposed mechanism for settling the outstanding debt during the upcoming review. However, the final plan will be developed in consultation with the lender.
The gas sector’s circular debt includes around Rs2.1 trillion in accumulated interest and Rs1.5 trillion in principal. Officials attributed the mounting liabilities to tariff differentials, unpaid receivables and various policy-related expenses.
A report submitted to a government committee showed that the tariff differential accounts for around Rs1.4 trillion of the liabilities. Power sector receivables stand at Rs123 billion, while sales and income tax-related receivables total Rs211 billion. Litigation-related costs have added another Rs58 billion.
The sector’s financial problems have also been aggravated by the high cost of imported liquefied natural gas (LNG). Gas utilities supplied expensive imported LNG to domestic consumers, while interruptions in LNG supplies under Pakistan’s agreement with Qatar forced the country to secure spot cargoes at significantly higher prices.
Under the proposed settlement plan, around Rs840 billion could be generated through dividends from gas companies, while another Rs270 billion is expected to come from the petroleum levy.
The government is also considering reducing the debt burden by Rs310 billion through the postponement of additional LNG cargoes from Qatar.
A further Rs15 billion could be recovered through take-or-pay arrangements in the power sector, while Rs60 billion is expected to be generated through the complete recovery of LNG-related costs.
The proposed strategy also includes settling the interest component of the accumulated circular debt.
However, recovering the full cost of LNG could result in higher gas prices for consumers, potentially adding to inflationary pressures.
Officials are expected to discuss the implications of the proposed measures with the IMF before finalising the three-year settlement framework.
Source: Dunya News
