The federal government has announced plans to address circular debt in Pakistan’s power and gas sectors. Sources from the Ministry of Finance revealed that Rs156 billion from the planned allocation will be used to cover interest expenses. Another Rs122 billion is planned for the repayment of principal amounts.
According to finance ministry officials, repaying the principal should ideally reduce the circular debt stock by an equivalent amount. However, the proposed circular debt management plans do not fully reflect this reduction.
Currently, electricity consumers are paying a debt service surcharge of Rs3.23 per unit. The government imposed this surcharge to help facilitate the repayment of circular debt in the power sector.
Sources said the government also plans to increase the petroleum levy by Rs5 per litre as part of a strategy to settle Rs1.7 trillion in gas sector circular debt. Under the plan, the debt is expected to be retired over the next six years.
The proposed strategy aims to raise approximately Rs550 billion through additional levy collections, dividends from state-owned gas companies, and savings achieved by reducing the number of imported LNG cargoes. These plans are part of a broader effort to stabilize the energy sector and reduce fiscal pressure.
The total gas sector circular debt currently stands at around Rs3.18 trillion. Of this, Rs1.7 trillion is planned to be settled under the new strategy. About Rs1.4 trillion of the debt comprises non-recoveries, line losses, and tariff differentials. The remaining Rs300 billion relates to taxes and interest.
Experts say the government’s plans could help improve the financial health of the energy sector, though successful implementation depends on strict monitoring and timely execution.
The Ministry of Finance emphasized that these plans are aimed at long-term stability. By reducing circular debt, the government hopes to ease the burden on consumers and improve the efficiency of electricity and gas distribution companies.
Officials also noted that further adjustments may be needed in the future. These plans are part of ongoing reforms designed to ensure transparency and fiscal responsibility in Pakistan’s energy sector.
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