Fuel prices may spike as govt plans Rs10 additional levy

ISLAMABAD: After dealing with the power sector, the federal government has now shifted its focus to eliminating the circular debt in the gas sector, which has risen to Rs 2,800 billion.

The Energy Task Force has finalised a comprehensive plan to deal with the crisis, which includes serious consideration of borrowing, subsidy cuts and price adjustments.

According to official sources, the government is considering the option of borrowing Rs 2,000 billion from commercial banks on soft terms to repay principal and Rs 814 billion in interest.

One proposal under consideration includes either waiving interest or making a lump sum payment to ease the financial pressure on gas companies. To repay bank loans over a period of seven years, the government is also considering shifting some of the financial burden to petroleum products. A petroleum levy of Rs 3 to Rs 10 per litre is being proposed, which could generate Rs 180 billion annually.

However, it will remain below the estimated Rs250 billion required annually to service the debt.

End subsidies, increase gas prices

The plan also includes a proposal to eliminate more than Rs150 billion in gas subsidies, which are currently used to support protected domestic consumers.

Officials say circular debt could end if all consumers are charged an average price for gas. Instead, targeted subsidies will be provided to protect the most vulnerable through the Benazir Income Support Program (BISP).

Currently, gas prices rely on a cross-subsidy model, where higher-end consumers effectively subsidize lower-end domestic consumers. The Energy Task Force believes this system is unsustainable and is preparing to move towards a more market-reflective pricing model.

A final decision will be made after the ongoing audit of circular debt data in the gas sector is completed. Once confirmed, the government is expected to begin implementing the plan in phases.