THE government’s reported plan of containing the gas sector circular debt of Rs3tr by further raising the petroleum development levy, rather than increasing gas prices as determined by Ogra, underscores the entrenched policy distortions in our energy pricing regime. The gas debt has already grown much larger than the power sector debt. The regulator is recommending an increase of up to 7pc in gas tariffs to generate an additional Rs118 per unit to meet an estimated requirement of Rs886bn in revenue for the two gas utilities in FY26. Under the law, the federal government was required to notify revised consumer prices from Jan 1. Yet, during a parliamentary hearing, the petroleum minister has ruled out an increase for at least the next six months. He did not deny reports that the government may further boost the petroleum levy by Rs5 per litre on petrol and diesel, already taxed at up to Rs82 per litre, to subsidise industrial and urban residential gas consumers. This socialisation of the gas sector’s inefficiencies across the entire population is neither reform nor a sound economic decision. It is, in fact, rooted in politics.

Gas utilities point out that tech-driven interventions have helped to reduce system losses and ‘quell’ the flow of fresh debt. In his testimony, the minister claimed that structural reforms have stabilised the gas sector without the need for an immediate tariff hike. These claims may be real but are not enough to liquidate the circular debt, which the government now intends to resolve through an additional petroleum levy. That the authorities have now decided to use this levy to postpone difficult pricing decisions in the gas sector for fear of backlash from consumers underscores how politically vulnerable the current administration feels. The choice may help it delay an immediate political backlash but only at the cost of further entrenchment of energy pricing distortions. Similar choices made in the power domain in the past have had severe consequences for the viability of the sector, and imposed huge costs on consumers and the budget. The gas circular debt — like the power sector debt — is not simply a fiscal problem. It is the outcome of years of flawed and politically expedient policy choices. While the government may defer tough decisions for a short period, it cannot do so indefinitely.

Published in Dawn, January 8th, 2026