ISLAMABAD: The International Monetary Fund (IMF) has commended Pakistan for managing the oil crisis during six months of the U.S.-Iran conflict without supply disruptions or an additional budgetary burden, but urged authorities to accelerate preparations for tackling the rising gas sector circular debt and delivering targeted subsidies to consumers below the poverty line.
Initial discussions on a proposed plan to shift gas-sector subsidies from consumer tariffs to direct transfers through the Benazir Income Support Programme concluded that the gas sector is "far from ready given data and ownership-related challenges," reports suggest.
As a result, the application of a uniform tariff linked to the average prescribed gas price of around Rs1,700 per million British thermal units, calculated by the Oil and Gas Regulatory Authority, appeared premature.
The Petroleum Division, led by Minister Ali Pervaiz Malik, has advocated uniform gas rates, as advised by Ogra, to cover the actual cost of supply, around Rs1,700 to Rs1,750 per mmBtu for the two gas utilities, reduce cross-subsidies from the industrial sector and curtail gas-sector debt.
The debt has now risen to around Rs3.6 trillion, including principal payables of about Rs1.8 trillion and an almost equivalent amount in accrued interest and late payment surcharges.
Another Petroleum Division proposal to increase the petroleum levy by a couple of rupees to finance part of the gas-sector circular debt has not found favor at relevant government forums and therefore has not been taken up with the IMF.
The introduction of a protected category for domestic consumers, involving gas prices of Rs200 to Rs350 per mmBtu, has widened the pricing gap and added to circular debt, the division suggested.
Only four of the 12 consumer slabs covered the cost of gas supply during winter, while rates remained below breakeven levels for around eight months of the year even after the imposition of substantial fixed charges.
Discussions with the visiting IMF staff mission showed that documentation of gas-meter ownership and premises remained a serious problem in a large number of cases.
Consumers often avoid reporting changes in names or property ownership for decades to avoid fresh security charges and other formalities, making it difficult to identify households below the poverty line on the basis of meter data.
The problem was even more pronounced in the commercial sector, where titles often remained unchanged while premises changed hands on "pagri."
In contrast, documentation in the power sector was considerably more advanced despite its substantially larger consumer base.
Therefore, the IMF staff is not yet convinced by the workability of the groundwork done so far, although the Fund has consistently insisted on targeted gas subsidies and has advised further deliberations with consultants to develop a more workable mechanism over the longer term.
The Fund also acknowledged Pakistan's management of petroleum prices without creating an additional burden on the budget or facing product shortages.
According to reports,it noted that some other regional countries had faced supply shortages, additional burdens on national budgets or state-owned corporations, or both higher fiscal costs and supply disruptions.
The IMF had initially raised questions over an increase of Rs65 billion to Rs70 billion in power-sector circular debt, which stood at Rs1.675 trillion at the end of June 2026.
However, it recognized that the power sector had actually "overperformed" on efficiency targets, including bill recoveries and loss reduction, while the overall increase in debt was caused by around Rs95 billion in lower disbursements by the Ministry of Finance on account of tariff differential subsidy, based on the ministry's own subsidy calculations.
The Ministry of Finance also endorsed these figures but reported that the budgeted subsidy was higher than the actual requirement calculated on the basis of units supplied.
It was also noted that power-sector circular debt could have declined further had K-Electric paid around Rs200 billion on time instead of holding up disbursement through litigation.
It was reported that the high court and appellate tribunal had upheld Nepra's decision envisaging around Rs200 billion in savings to power companies, although KE could still pursue further legal remedies.
The IMF staff was reportedly convinced, at least as far as the comparable numbers were concerned.
The two sides are expected to finalize practical plans during policy-level discussions next week for providing subsidies directly in cash to poor power consumers through the Benazir Income Support Programme, instead of through subsidized tariffs.
