Govt Finalizing Gas Sector Reforms to Address Rs. 2.6 Trillion Circular Debt

The government is fine-tuning critical reforms in the gas sector, including reducing LNG cargo imports by two per month, as part of efforts to eliminate the sector’s circular debt, which currently stands at a staggering Rs. 2.6 trillion. The reforms aim to meet the International Monetary Fund’s (IMF) directive to bring the circular debt flow to zero. A high-level meeting chaired by the Minister for Petroleum on August 8, 2025, at the Task Force Headquarters in Rawalpindi reviewed the progress of reforms. Attendees included Advisor to the Prime Minister on Privatization Lt-General Zafar Iqbal, Secretary Petroleum, and OGRA representatives. The meeting focused on LNG demand synchronization, circular debt mitigation, tariff rationalization, and revenue efficiency. The Secretary Power highlighted the need for better coordination between the Power and Petroleum Divisions to address reduced RLNG consumption by the power sector. It was noted that RLNG-based power plants cannot be declared as “must-run” due to implications on the power generation mix. The committee proposed forming a technical coordination mechanism to optimize RLNG demand and off-take. The meeting also discussed the financial implications of increased RLNG usage, with estimates showing additional consumption could cost Rs. 88 billion to Rs. 41 billion annually, depending on tariff adjustments. The Advisor to the PM on Privatization, Muhammad Ali, presented progress on the Gas Circular Debt Management Plan (CDMP), developed in collaboration with KPMG. Proposed measures include savings from LNG cargo diversions, incremental dividends from state-owned enterprises, and waivers on late payment surcharges. The final plan will be presented next week. The Petroleum Division is working on rationalizing RLNG tariffs, including reviewing port charges and optimizing terminal utilization. OGRA, meanwhile, is reviewing revenue requirements and benchmarking unaccounted-for gas (UFG) targets. A new UFG study is expected by November 30, 2025, to improve transparency and efficiency. The Task Force emphasized increasing the use of domestic gas and reducing reliance on imported LNG to improve energy security. Proposals include blending gas prices for industry and power sectors and converting imported coal power plants to local coal. The final recommendations will be submitted to the Prime Minister’s Office. The next meeting of the main committee is scheduled for today, August 18, 2025, to finalize the roadmap for reforms and address the gas sector’s challenges.