Government Considers Putting an Additional Levy on Petroleum Products

Federal Minister for Energy (Petroleum Division), Ali Pervaiz Malik, confirmed on Tuesday while talking with the media that gas prices will remain frozen for the next six months, following directives from Prime Minister Shehbaz Sharif. 

While this offers households temporary respite, the government faces a daunting challenge: the Rs. 3 trillion gas circular debt that still needs to be paid.

The “Good” News: Stopping the Bleeding

The Petroleum Division claims to have achieved a “milestone” in reforms. According to Mr Malik, the flow of fresh circular debt has been “quelled,” meaning the sector is no longer accumulating new losses daily.

The Minister also highlighted operational improvements:

• Enhanced Supply: Domestic consumers are receiving better gas pressure with no fields currently under curtailment.
• Qatar Negotiations: Successful talks with Qatar have allowed Pakistan to divert surplus LNG cargoes to the international market, saving costs while honouring contracts.
• Power Sector Support: The power sector is purchasing gas beyond its initial demand to help prevent load-shedding.

The Rs. 3 Trillion Debt on the Gas Sector

The historical gas circular debt now stands at over Rs. 3 trillion, including late payment surcharges. “Unlike the power sector, the gas sector lacks a guaranteed revenue stream to clear this backlog,” said Malik last month.

The point is, if gas prices are frozen for the next six months, how will the government satisfy its promise to the IMF to “retire” this Rs. 3 trillion debt?

The Likely Solution: A Hike at the Pump 

The answer appears to lie in a proposal that shifts the burden from gas meters to petrol pumps.

According to a Tribune report from December, the government has been discussing a plan, reviewed by Finance Minister Muhammad Aurangzeb, to increase petrol and diesel prices by Rs. 5 per litre. This levy would act as a funding mechanism through 2031 to pay off the gas sector’s liabilities.

Malik himself hinted at this difficulty, noting that without direct revenue streams, the government is considering “other means” and company dividends to settle the initial debt.

The Non-Denial 

The connection between the gas price freeze and a petrol hike became clearer during Tuesday’s meeting of the National Assembly Standing Committee. As reported by Dawn, when lawmakers repeatedly asked Malik about the proposed Rs. 5 levy hike, he did not deny it. Instead, he deflected the questions, stating that a “separate briefing” could be arranged on the subject.

The fact that committee members specifically asked about the “Rs5 hike” suggests the proposal is already well-known within legislative circles. 

With the petroleum levy serving as the government’s most efficient “collection machine,” it appears the cost of past mismanagement is set to be passed on to every household through fuel prices.

Conclusion 

The government has successfully stopped the creation of new debt and shielded gas consumers for now. However, with a Rs. 3 trillion bill due and the IMF watching, the “relief” on gas bills seems destined to be paid for by motorists, who may soon see an extra tax.