Sunday June 23, 2024

To rein in Rs2.9tr circular debt in gas sector: Hike in petroleum levy from Rs60 to Rs80 per litre suggested

top authorities suggested increasing petroleum levy on Mogas and diesel from Rs60 to 80 per litre

By Khalid Mustafa
June 09, 2024
A fuel station attendant filling up a car at a petrol station. — AFP/File
A fuel station attendant filling up a car at a petrol station. — AFP/File

ISLAMABAD: The top authorities are currently working on a set of doable suggestions, including increasing the petroleum levy on Mogas and diesel from Rs60 to 80 per litre, imposing another levy on PoL products and getting a hold of the amount of gas infrastructure development cess (GIDC) held with the Finance Division. 

They are also considering an increase in the gas tariff over and above the revenue requirements of gas companies, making the government able to use the surpluses revenue to gradually handle the monster of circular debt that has risen to Rs2.9 trillion in the gas sector.

The top mandarins are also considering another option to arrange some amount for offloading inter-corporate debt in cash. The rest is to be tackled through the book adjustments as was done in 2013 by the then finance minister Ishaq Dar while ending the circular debt in the power sector through payments of Rs480 billion to IPPs.

The authorities in the Petroleum Division have been asked to come out with doable suggestions to handle the issue of circular debt after the Finance Ministry under IMF diktat refused to allocate budgetary subsidy for FY25 to end the loss of Rs260 billion accumulated in the wake of non-recovery of RLNG diversion to domestic consumers. It said the Petroleum Division’s authorities should carve out a strategy on how to handle this lingering issue.

The Finance Division has communicated that the IMF is not allowing it to allocate any budgetary subsidy for the next fiscal to deal with the increasing circular debt in the gas sector and Petroleum Division will have to come up with its own plan to this effect.

When asked about the first option of hiking the petroleum levy on petroleum products to Rs80 from Rs60 per liter, relevant officials said that the revenue collected through petroleum levy is used by the Finance Division in budget deficit financing. If the levy gets increased by Rs20 per litre, it may be utilized for the same purpose. The government will have to get another act passed through the National Assembly for a special levy to be used for retiring the circular debt in the gas sector.

The official said for using the GIDC amount for tackling the circular debt, the government would have to introduce the changes in the GIDC Act. The government has so far collected Rs350 billion from various companies under GIDC and the remaining Rs400 billion are yet to be recovered from fertilizer and CNG sectors. However, the option to increase the gas tariff more than the required revenue requirements of the gas companies every six month will ensure the surpluses that can be used to reduce the circular debt in a staggered manner. But for this, political will of the sitting regime is required.

Relevant officials in the Petroleum Division have also suggested to maintain the natural gas sale price from July 1, 2024, against the 10 percent reduction in system gas price recommended by Ogra so that prior years’ shortfall that has reached Rs1,500 billion could be reduced by Rs100 billion in a staggered manner. The government may also maintain the gas prices for the fertilizer sector but will increase the gas price for captive power plants to Rs2,900 or 3,000 per MMBTU from the existing price of Rs2,750 per MMBTU under IMF diktat.