Pakistan’s government is preparing to introduce new gas pricing categories that could lower bills for millions of households, even as the country grapples with a ballooning circular debt crisis in the energy sector that threatens to destabilize state-owned companies.
The Cabinet Committee on Energy, led by Prime Minister Shehbaz Sharif, has instructed the Ministry of Energy to develop a more rational system for classifying protected consumers—those who receive subsidized gas rates. The move aims to bring additional households under cheaper tariff brackets, potentially offering relief to middle-income families struggling with rising living costs.
However, this consumer-friendly initiative comes against a backdrop of severe financial strain. Recent assessments by the World Bank and advisory firm KPMG have revealed that Pakistan’s gas sector accumulated massive circular debt between 2019 and 2023, driven primarily by frozen consumer prices and the controversial diversion of expensive imported liquefied natural gas to domestic users during winter months.
Circular debt—defined as the net financial burden on gas distribution companies resulting from policy and regulatory decisions—has grown so large that it now threatens the viability of profitable state-owned exploration and production companies. These firms, starved of cash flow, are losing their capacity to invest in core operations, raising the specter of transformation from profit centers into loss-making entities that will ultimately require taxpayer bailouts.
The crisis stems from multiple factors: consumer gas prices remained frozen from 2013 to 2022, creating a widening gap between actual costs and revenues. Meanwhile, gas distribution companies Sui Southern Gas Company and Sui Northern Gas Pipelines have struggled with low bill collection rates, particularly in Balochistan. The power sector owes billions for gas supplies, while the Federal Board of Revenue holds back 83 billion rupees in pending tax refunds.
Adding to the complexity, expensive RLNG was redirected to domestic consumers during winter heating seasons from 2018 to 2023, creating enormous cost differentials that someone must ultimately pay. The government also failed to allocate adequate budgetary resources for promised subsidies.
The Petroleum Division has requested immediate action on several fronts: settlement of 42 billion rupees owed by the power sector for RLNG supplies, release of tax refunds, and a massive 160 billion rupee budgetary allocation to eliminate cross-subsidies in the domestic sector—funds that would theoretically free up resources to support industrial growth.
The Finance Division indicated that a comprehensive Circular Debt Management Plan will be discussed with the International Monetary Fund during the loan program review scheduled for September, suggesting that any major reforms will require international lender approval.
The committee has directed all relevant ministries to coordinate on resolving power sector receivables, tax refund issues, and subsidy budgeting. High-level engagement has been deemed necessary to address particularly acute bill recovery problems in Balochistan.
For ordinary Pakistani households, the proposed tariff restructuring could mean lower monthly gas bills. But the underlying financial crisis suggests that without fundamental reforms—including improved bill collection, realistic pricing, and resolution of inter-corporate debts—any consumer relief may prove temporary, with costs eventually returning in other forms.
