Govt plans to wipe out Rs3.6tr gas debt in three years

The federal government has decided to introduce a three-year plan to eliminate the gas sector's Rs3.6 trillion circular debt, seeking to meet a key condition of the International Monetary Fund (IMF) ahead of economic review talks scheduled for the last week of September, sources said on Saturday. The finance ministry will brief the IMF on the proposed settlement plan during the upcoming review negotiations, with the government expected to finalise the mechanism after consultations with the lender. The gas sector's circular debt has climbed to Rs3.6 trillion, comprising Rs2.1 trillion in interest and Rs1.5 trillion in principal, according to sources. Under the proposed plan, the government estimates reducing the circular debt by Rs528 billion in the first year, Rs473 billion in the second year and Rs433 billion in the third year. Sources said the plan would be shared with the IMF during the September negotiations, after which a final decision would be taken following consultations with the Fund. Under the proposed mechanism, Rs840 billion in dividends from gas companies would be used to reduce the circular debt. The government also estimates raising Rs270 billion through the petroleum levy. The plan also envisages reducing the debt by Rs310 billion by deferring additional LNG cargoes from Qatar, Rs15 billion through the power sector's take-or-pay arrangements and Rs60 billion through full recovery of LNG costs. Sources said the issue of interest charged on the gas sector's circular debt would also be settled under the plan. However, the proposed full recovery of LNG costs could lead to an increase in gas prices, sources cautioned.