Petrol Likely to Become More Expensive as Govt Eyes Higher Levy

The government is considering increasing the petroleum levy by Rs. 5 per litre to help retire Rs. 1.7 trillion worth of gas sector circular debt, reported Express Tribune. The report noted that, reviewed this week at the level of Finance Minister Muhammad Aurangzeb, includes raising the petroleum levy on petrol and high-speed diesel to generate around Rs. 540 billion over the coming years, subject to approval by the federal cabinet and the International Monetary Fund (IMF). Under the plan, the existing petroleum levy of Rs. 79.62 per litre on petrol and Rs. 75 per litre on diesel would rise to about Rs. 85 and Rs. 80 per litre respectively. The additional burden would be borne by consumers nationwide as part of efforts to address long-standing liabilities in the gas sector. Government sources said the Petroleum Division has proposed settling the debt through a mix of higher petroleum levy, dividends from state-owned oil and gas companies, and savings generated from diverting imported LNG cargoes. The total gas sector circular debt is estimated at around Rs. 3.3 trillion as of end June, including Rs. 1.5 trillion in late payment surcharges. Officials said the government plans to retire the principal amount of Rs. 1.7 trillion over six years. Unlike the power sector, the gas sector does not have a dedicated surcharge mechanism to service its debt, prompting the search for alternative revenue streams. Petroleum Minister Ali Pervaiz Malik said the use of dividends from state-owned companies is being considered due to the absence of guaranteed gas sector revenues. He noted that in the power sector, a surcharge of Rs. 3.23 per unit is already being charged to pay off circular debt. According to the proposal, around Rs. 680 billion would be raised through dividends from oil and gas companies. Oil and Gas Development Company Limited is expected to contribute more than Rs. 250 billion, Pakistan Petroleum Limited about Rs. 230 billion, and Government Holding Private Limited nearly Rs. 200 billion. In addition, the plan includes using around Rs. 415 billion in savings from LNG diversion and another Rs. 75 billion from recoveries. The Petroleum Division has suggested that these savings should be used for debt retirement instead of reducing gas prices. The Finance Division has broadly supported the proposal but raised questions over the timeframe and whether dividend income should be counted within regular budget projections or treated as additional resources. The plan assumes that gas tariffs will remain aligned with actual costs and that no fresh circular debt will accumulate. However, debt retirement would be conditional on recipients agreeing to waive interest on late payment surcharges, similar to the approach used previously in the power sector. The IMF has also stressed the need to reduce gas sector circular debt through stock retirement and timely tariff adjustments. In its staff level report, the Fund noted that while principal debt fell by Rs. 86 billion last year due to cost-reflective tariffs, overall debt still rose because of higher late payment surcharges. The finance ministry spokesman said consultations between the Finance Division and Petroleum Division are ongoing, and a final proposal will be submitted to the cabinet for approval. He added that the gas sector circular debt management plan is part of the broader reform agenda agreed with the IMF.