The International Monetary Fund is seeking to limit the federal government’s ability to reduce gas prices in Pakistan, warning that downward tariff revisions could increase the gas sector’s circular debt.
The IMF raised the issue during its reviews of Pakistan’s Extended Fund Facility and Standby Arrangement, with the government subsequently amending the Oil and Gas Regulatory Authority Ordinance in March 2022 to limit its powers to reduce tariffs. The government also committed to revising consumer gas prices in line with OGRA determinations.
Pakistan’s gas sector operates differently from the power sector, where the government budgets subsidies to cover tariff differences. Gas prices have largely relied on a cross subsidy mechanism, with higher tariffs for some consumer categories helping protect vulnerable residential consumers.
Under the existing framework, OGRA determines wellhead gas prices and the revenue requirements of Sui gas companies twice a year. The federal government then has 40 days to advise on the determinations before consumer prices are notified.
The practice of regularly adjusting consumer gas prices in line with OGRA determinations was followed until fiscal year 2013 but was subsequently discontinued. This contributed to the buildup of tariff differences, including from the diversion of re-gasified liquefied natural gas to the domestic sector without a firm mechanism to recover its full cost.
The gas sector’s circular debt stood at Rs. 3,288 billion as of June 30, 2025, including Rs. 1,468 billion in interest costs. Under the IMF program, Pakistan agreed to establish a clear definition of gas circular debt, verify its stock, introduce monthly reporting and prepare a circular debt management plan.
The plan calls for regular adjustments to end user gas prices according to established formulas, along with measures to reduce costs and cut unaccounted for gas losses. The World Bank has also assisted the Petroleum Division in developing a definition of gas circular debt and a debt reporting system.
The rising circular debt is also affecting state owned exploration and production companies, including Oil and Gas Development Company, Pakistan Petroleum and Government Holdings Private Limited. Lower bill collections by Sui companies, along with problems in the power sector, have increased receivables and weakened the financial capacity of these companies to invest in exploration and production.
The government has separately prepared a petroleum sector reform plan that proposed settling Rs. 1,493 billion in circular debt over five years. The proposal was presented to the prime minister in December 2025.
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