New gas tariff mechanism in the works to check circular debt

ISLAMABAD: The government has begun work to introduce a new gas price determination mechanism, either on a monthly or quarterly basis, instead of the current biannual system.

“This directive was issued by the 20-member task force, headed by Deputy Prime Minister Ishaq Dar, in its last meeting. The rationale behind shifting to a monthly or quarterly gas price determination formula is to mitigate the further accumulation of circular debt, which stood at Rs2.7 trillion as of March 2024,” a senior official from the energy ministry told The News.

The petroleum division, according to the official, has been tasked with submitting recommendations for necessary amendments to the OGRA Ordinance, paving the way for the new gas pricing mechanism. Currently, gas prices are determined biannually—on July 1 and January 1.

However, there is an ongoing debate within the petroleum division, as some senior officials favour the existing pricing mechanism. They argue that the Petroleum Concession Agreements (PCAs) with Exploration and Production (E&P) companies are based on the biannual price determination mechanism, not a monthly or quarterly system. Despite this, Federal Petroleum Minister Musadik Malik supports the introduction of a monthly or quarterly gas tariff determination mechanism, believing it would help contain the circular debt, which has become a larger burden than the power sector’s circular debt, now at Rs2.665 trillion as of May 2024.