The International Monetary Fund (IMF) is seeking to limit the federal government’s ability to reduce gas prices in Pakistan. The lender has warned that lower tariffs could increase circular debt in the gas sector.
The issue was raised during the IMF’s reviews of Pakistan’s Extended Fund Facility and Standby Arrangement programmes. Following the discussions, the government took steps to limit its ability to reduce gas tariffs without following the regulatory process.
Pakistan amended the Oil and Gas Regulatory Authority (OGRA) Ordinance in March 2022. The changes restricted the government’s powers to reduce tariffs determined by the regulator.
The government also committed to revising consumer gas prices according to OGRA determinations. The move was aimed at ensuring that gas tariffs reflect the costs and revenue requirements of the sector.
Pakistan’s gas pricing system differs from the electricity sector. In the power sector, the government generally budgets subsidies to cover differences between approved tariffs and costs.
The gas sector has largely relied on a cross-subsidy mechanism. Under this system, higher tariffs for certain consumer categories help keep gas prices lower for vulnerable residential consumers.
OGRA currently determines wellhead gas prices and the revenue requirements of Sui gas companies twice a year. After OGRA makes its determinations, the federal government has 40 days to provide advice before consumer prices are officially notified.
The government previously followed a practice of regularly adjusting consumer gas prices according to OGRA determinations. However, this practice was discontinued after fiscal year 2013.
The decision contributed to the accumulation of tariff differences in the gas sector. One factor was the diversion of re-gasified liquefied natural gas (RLNG) to the domestic sector without a firm mechanism to recover its full cost.
The gas sector’s circular debt has now reached a significant level. It stood at Rs3,288 billion as of June 30, 2025, including Rs1,468 billion in interest costs.
Under its IMF programme, Pakistan agreed to establish a clear definition of gas circular debt. The country also committed to verifying the existing debt stock and introducing monthly reporting.
Pakistan is also required to prepare and implement a circular debt management plan. The plan includes regular adjustments to end-user gas prices according to established formulas.
The proposed measures also focus on reducing costs and controlling unaccounted-for gas losses. These losses remain a major challenge for the financial sustainability of the gas sector.
The World Bank has also supported the Petroleum Division in developing a definition of gas circular debt. It has further assisted in establishing a system for reporting the accumulated debt.
The growing debt is affecting state-owned exploration and production companies as well. These include Oil and Gas Development Company Limited, Pakistan Petroleum Limited and Government Holdings Private Limited.
Lower bill collections by Sui gas companies have contributed to rising receivables. Problems in the power sector have also added to financial pressures on these companies.
The situation has weakened the financial capacity of state-owned energy companies to invest in exploration and production. This could create additional challenges for Pakistan’s domestic energy supply and future investment.
The government has separately prepared a petroleum sector reform plan to address the wider financial problems in the energy sector. The plan proposed settling Rs1,493 billion in circular debt over five years.
The proposal was presented to the prime minister in December 2025. The latest IMF position on gas tariffs adds further pressure on Pakistan to maintain a pricing system that prevents the accumulation of new circular debt.
The government will therefore have limited room to reduce consumer gas prices without considering the impact on the sector’s financial position. Future tariff decisions are expected to remain closely linked to OGRA determinations and Pakistan’s commitments under the IMF programme.
