Circular debt: Govt considers hiking petroleum levy from Rs60 to Rs80 per litre

Move comes after finance ministry refuses to allocate budgetary subsidy on IMF diktat

Khalid Mustafa
A large number of vehicles stand in a queue to fill their vehicle petrol tanks at a petrol pump in Islamabad, on May 24, 2022. — Online
  • Govt mulls hiking gas tariff, imposing another levy on pol products.
  • Finance ministry refuses to allocate budgetary subsidy on IMF diktat.
  • Move aims at addressing circular debt of Rs2.9tr in gas sector.

ISLAMABAD: In its bid to address the issue of soaring circular debt, the federal government is working on practical suggestions including hiking petroleum levy on motor gasoline (Mogas) and diesel from Rs60 to 80 per litre, The News reported on Sunday.

Top authorities are also mulling over imposing another levy on petroleum products and increasing the gas tariff over and above the revenue requirements of gas companies to allow the government to address circular debt that has risen to Rs2.9 trillion in the gas sector.

The government also aims to hold of the amount of gas infrastructure development cess (GIDC) held with the Finance Division. 

Furthermore, officials are also reviewing the option to arrange some amount for offloading inter-corporate debt in cash, whereas, the rest will be catered via the book adjustments as was done in 2013 by the then finance minister Ishaq Dar while ending the circular debt in the power sector through payments of Rs480 billion to Independent Power Producers (IPPs).

The government has asked the Petroleum Division to come up with practical suggestions to address the issue of circular debt after the Finance Ministry, following the International Monetary Fund's (IMF) directions, refused to allocate budgetary subsidy for FY25 to end the loss of Rs260 billion accumulated in the wake of non-recovery of RLNG diversion to domestic consumers — a fact communicated by the Finance Division as well.

Officials have said that the revenue collected through petroleum levy is used by the Finance Division in budget deficit financing. If the levy gets increased by Rs20 per litre, it may be utilised for the same purpose.

The government will have to get another act passed through the National Assembly for a special levy to be used for retiring the circular debt in the gas sector, they added.

Furthermore, an official has also said that the government would have to introduce changes in the GIDC Act if it wants to utilise the GIDC amount for tackling the circular debt.

The government has so far collected Rs350 billion from various companies under GIDC and the remaining Rs400 billion are yet to be recovered from fertiliser and the Compressed Natural Gas (CNG) sectors, he added.

However, the option to increase the gas tariff more than the required revenue requirements of the gas companies every six months will ensure the surpluses that can be used to reduce the circular debt in a staggered manner. But for this, the political will of the sitting regime is required.

Relevant officials in the Petroleum Division have also suggested maintaining the natural gas sale price from July 1, 2024, against the 10% reduction in system gas price recommended by Ogra so that prior years’ shortfall that has reached Rs1,500 billion could be reduced by Rs100 billion in a staggered manner.

The government may also maintain the gas prices for the fertilizer sector but will increase the gas price for captive power plants to Rs2,900 or 3,000 per MMBTU from the existing price of Rs2,750 per MMBTU under IMF diktat.