Pakistan proposes PKR1.5tr plan to settle gas circular debt

Pakistan's Petroleum Division has proposed settling around PKR1.495 trillion of the gas sector's circular debt through dividends from state-controlled energy companies, a petroleum levy and savings from reduced LNG purchases.

The proposal was submitted to the Cabinet Committee on Energy (CCOE) this month.

How much of Pakistan's gas circular debt does the plan target?

The proposal targets about 41% of the gas sector's PKR3.607 trillion circular debt stock as of March 2026, equivalent to roughly 3% of Pakistan's GDP. The outstanding debt comprises PKR1.884 trillion in principal and PKR1.723 trillion in late-payment surcharges.

The proposed settlement would draw on company dividends, levy collections, LNG savings and additional recoveries. Together these are intended to retire the targeted portion of the debt over time.

How would the gas circular debt settlement be funded?

Around PKR540 billion is expected to come from incremental dividends from Oil and Gas Development Company (OGDC), Pakistan Petroleum Limited (PPL) and Government Holdings (Pvt) Limited (GHPL). The proposed cash pool envisages gross dividends of about PKR840 billion from the three companies, with the government's share estimated at PKR540 billion.

Indicative calculations put the government's proceeds at around PKR197 billion from OGDC, PKR229 billion from PPL and PKR115 billion from GHPL. Another PKR270 billion is proposed through a PKR5-per-litre petroleum development levy, based on annual petroleum sales of around 18 billion litres.

Topline Securities said the levy would likely be collected over several years, generating an estimated PKR80 billion to PKR90 billion annually rather than the full PKR270 billion in a single year. The plan also envisages around PKR590 billion from lower LNG cargo purchases and savings from replacing imported LNG with cheaper domestic gas. A further PKR80 billion could come from LNG price differentials and PKR15 billion from take-or-pay claims.

Which energy companies could benefit from the settlement?

The proposed settlement could ease liquidity pressures across the energy supply chain, particularly for upstream exploration and production companies whose receivables have increased because of delayed payments. Muhammad Waqas Ghani, head of research at JS Global, described the resolution of gas circular debt as an important catalyst for energy companies, while warning that continued accumulation of gas-sector debt remained a key risk.

Topline Securities said OGDC, PPL, Pakistan State Oil (PSO) and Mari Energies could benefit from improved cash flows and reduced receivable pressures. The brokerage estimated receivables per share at PKR118.2 for OGDC, PKR217.3 for PPL, PKR69.9 for Mari and PKR659.3 for PSO.

JS Global said its estimates were indicative and based on available information, with further clarity needed on the final structure, timing and treatment of the arrangement under Pakistan's IMF programme.

What role does the IMF play in the settlement plan?

The proposal comes as Pakistan works to reduce persistent liquidity pressures in the energy sector, with circular debt reduction a key reform area under its IMF programme. Pakistan entered a $7 billion, 37-month Extended Fund Facility with the IMF in 2024, with the next review expected in September.

The government has also been discussing a framework for settling gas-sector circular debt with the IMF, with implementation expected to require IMF concurrence and CCOE approval. The proposed use of energy-company dividends and petroleum levy proceeds would allow the government to retire part of the debt without relying entirely on direct budgetary support.

How large is Pakistan's total energy-sector circular debt?

Gas-sector circular debt has accumulated due to tariff differentials, delayed payments, LNG-related costs, inefficiencies and rising receivables across the supply chain. Pakistan's broader energy-sector circular debt stood at PKR5.286 trillion by June 2026, comprising PKR3.611 trillion in gas-sector debt and PKR1.675 trillion in power-sector debt.

According to Arif Habib Limited, power-sector circular debt declined to PKR1.675 trillion in June from PKR1.853 trillion in April, but remained above the PKR1.614 trillion recorded in June 2025.