Plan to clear Rs2.8tr gas circular debt without burdening consumers

ISLAMABAD: A task force on power, which previously played a key role in addressing issues in the electricity sector, has now been assigned the responsibility of tackling the gas sector’s mounting circular debt, which has reached Rs2.8 trillion. However, the task force is yet to unveil its detailed plan for resolving the crisis.

To develop an initial strategy, the Petroleum Division had engaged KPMG, a well-reputed consulting firm, to formulate a roadmap to address the debt that has rendered the gas sector financially unsustainable. In its proposals, the KPMG suggested that end consumers would need to absorb the cost of retiring Rs2.8 trillion circular debt. The firm recommended imposing a special levy ranging between Rs3 and Rs10, similar to the debt service surcharge currently applied to electricity bills, to raise funds for debt servicing through commercial bank loans. This debt would then be gradually retired over a 6 to 7-year period.

Additionally, the firm proposed a further increase in gas prices and elimination of the existing Rs160 billion cross-subsidy, to be phased out completely by January 2027. This combined approach of new levies, tariff hikes and subsidy removal formed the core of KPMG’s recommended strategy for addressing the gas sector circular debt.

The task force on power held an important meeting in Rawalpindi with senior officials of the Petroleum Division some days back but didn’t share its documented working and plan of resolving the gas sector circular debt except for some salient features.

However, The News has learnt through well-placed official sources that the task force comprising Advisor to PM on Privatisation Muhammad Ali, Lt-General Zafar Iqbal and experts from SECP, CPPA and NEPRA have carved out a plan based on dividends of the state-owned companies in the oil and gas sector trapped in the circular debt. “Under this plan, the end gas consumers will not be burdened at all.”

The official sources said that the Task Force may not subscribe the options prepared by the Petroleum Division with an input of the reputed firm under which a special levy on petroleum products has been proposed to retire the debt to be attained from banks to erase the stock of Rs2,000 billion; IMF will not allow the government to extend the sovereign guarantee to be required for getting the required loan.

In the case of power sector circular debt, Rs1,275 billion has been arranged from commercial banks without sovereign guarantee against the genuine receivables but in the case of gas sector, the situation is quite different. In the gas sector, E&P companies like OGDCL, PPL, GHPL are state-owned entities. Likewise, Sui gas companies (SNGPL, SSGC) that owe Rs1,500 billion to E&P companies are also state-owned utilities. The PSO, victim of the circular debt trap because of LNG, is also with majority government shares. “So in this particular case, the federal government has promised that it will pay amount from the budget on behalf of Sui companies to E&P firms and PSO in the head of receivables which the said companies will show them in the shape of government dividends. This is how the government will pay and receive the same in the form of dividends and this is how the balance sheets of inter-corporate circular debt in gas sector will be cleared without passing any hike to the end consumers.”

The top officials said that the task force has almost completed its work on its plan which is being kept under the wraps.

When attention was drawn to the fact that in the past, IMF did not buy such proposal to end the gas circular debt when the same was proposed by Ishaq Dar, the officials said that their plan has been made in such a way that the IMF would not raise objection as the pervious flaws in the plan has been done away with amicably.