Govt Moves to Finalize Gas Sector Reforms to Tackle Rs. 2.6 Trillion Circular Debt

The Government of Pakistan is in the final stages of introducing major reforms in the gas sector, aiming to resolve the mounting circular debt crisis of Rs. 2.6 trillion. Key measures under consideration include cutting back on imported LNG cargoes by two shipments per month. These reforms are part of commitments made to the International Monetary Fund (IMF) to bring the gas sector’s circular debt flow to zero.

High-Level Review Meeting in Rawalpindi

On August 8, 2025, a high-level meeting chaired by the Minister for Petroleum at the Task Force Headquarters in Rawalpindi assessed the progress of the reforms. The session was attended by:

• Lt-General Zafar Iqbal, Advisor to the Prime Minister on Privatization

• Secretary Petroleum

• Representatives of OGRA (Oil and Gas Regulatory Authority)

The discussions primarily revolved around tariff rationalization, LNG demand alignment, circular debt reduction, and improving revenue collection.

Coordination Between Power and Petroleum Divisions

The Secretary Power emphasized the importance of closer coordination between the Power and Petroleum Divisions. The declining use of RLNG (Regasified Liquefied Natural Gas) by power plants was identified as a challenge, since such plants cannot be categorized as “must-run” due to their impact on the national generation mix.

To address this, the committee recommended establishing a technical coordination mechanism to streamline RLNG demand forecasting and optimize off-take.

Financial Impact of Increased RLNG Consumption

The meeting also reviewed the potential financial consequences of higher RLNG consumption. Estimates suggest that additional use could add Rs. 41 billion to Rs. 88 billion annually, depending on tariff revisions.

Progress on Gas Circular Debt Management Plan (CDMP)

Advisor to the Prime Minister on Privatization, Muhammad Ali, presented updates on the Gas Circular Debt Management Plan (CDMP), prepared with the assistance of KPMG. The plan proposes:

• Savings from reduced LNG cargo imports

• Additional dividends from state-owned enterprises

• Waivers on late payment surcharges

The finalized plan will be submitted for approval next week.

RLNG Tariff Reforms and UFG Study

The Petroleum Division is currently reviewing RLNG tariffs, including port charges and terminal utilization, to bring greater efficiency. Meanwhile, OGRA is reassessing gas sector revenue requirements and benchmarking Unaccounted-for-Gas (UFG) levels.

A fresh UFG study, expected by November 30, 2025, aims to enhance transparency and reduce inefficiencies in the system.

Boosting Domestic Gas and Reducing LNG Reliance

The Task Force underscored the importance of shifting towards domestic gas resources to strengthen Pakistan’s energy security. Suggestions included:

• Blending gas prices for industrial and power consumers

• Reducing dependence on imported LNG

• Converting imported coal-based power plants to run on local coal

These steps are expected to ease pressure on the economy and lower reliance on costly fuel imports.

Next Steps in Gas Sector Reforms

The main reform committee is scheduled to meet again on August 18, 2025, to finalize the reform roadmap. Its recommendations will be forwarded to the Prime Minister’s Office for approval, marking a critical step in tackling Pakistan’s gas sector challenges and achieving long-term sustainability.