Pakistan's Gas Debt and Supplier Bills Reach Rs5.454 Trillion as Reform Plans Take Shape

Late payment charges nearly match the original gas debt

Pakistan's gas sector carried Rs5.454 trillion in circular debt and outstanding supplier bills as of June 30, 2026, Petroleum Minister Ali Pervaiz Malik told the National Assembly in written replies during Monday's Question Hour. Almost half of the circular debt alone consisted of charges for paying late.

Malik put circular debt at Rs3.631 trillion and outstanding payments to domestic gas and liquefied natural gas suppliers at another Rs1.823 trillion. Within the circular debt figure, the original amount owed was Rs1.848 trillion, while late payment surcharges had reached Rs1.783 trillion.

Those charges account for about 49% of circular debt. Put simply, for every Rs100 of original debt, roughly Rs96 more had accumulated in late payment charges. Clearing unpaid bills therefore involves almost as much in accumulated penalties as in the underlying obligations.

The disclosure comes as the government develops overlapping proposals to settle old liabilities, change how the gas market operates and coordinate gas supply with electricity planning. An August 19, 2026 account described a proposed settlement of about Rs1.49 trillion, financed through company dividends, a petroleum levy and savings or recoveries linked to LNG.

For households and businesses, the decisions reach beyond government accounting. They concern who pays for gas already consumed, whether some costs move to petrol and diesel users, and how suppliers receive enough cash to keep operating and investing.

Circular debt develops when unpaid bills move along an energy supply chain. A utility that cannot recover enough money from customers or other institutions may delay paying its suppliers. Those suppliers then carry the financial pressure, while late payment charges can keep increasing the amount owed.

What makes up the Rs5.454 trillion burden?

Malik's breakdown separates the Rs3.631 trillion circular debt balance from Rs1.823 trillion payable to suppliers. The principal portion of circular debt consisted of four categories:

• Rs1.448 trillion in tariff differentials.
• Rs131 billion receivable from power companies.
• Rs210 billion in sales and income tax receivables.
• Rs59 billion tied to litigation.

These four amounts total Rs1.848 trillion. Adding Rs1.783 trillion in late payment surcharges brings the circular debt balance to Rs3.631 trillion.

Tariff differentials are gaps between the revenue a gas utility is entitled to recover under the pricing framework and the amount recovered through approved consumer prices. At Rs1.448 trillion, this category accounts for about 78% of the principal balance, making pricing and revenue recovery central to any settlement.

Domestic gas suppliers were owed Rs1.479 trillion, while LNG suppliers were owed Rs344 billion. Domestic suppliers therefore accounted for about 81% of the Rs1.823 trillion supplier payment balance. The LNG amount included adjustments to regasified LNG prices and costs associated with diverting supplies between consumer groups.

LNG is natural gas cooled into liquid for transport by ship. After arrival, it is turned back into gas for pipeline delivery. When imported fuel is supplied to a consumer category at a price below its recoverable cost, the resulting gap has to be financed elsewhere in the chain.

A year of rising gas liabilities

The Petroleum Division's figures put circular debt at Rs3.288 trillion on June 30, 2025, rising to Rs3.631 trillion a year later. The division described the annual increase as Rs344 billion, or roughly 10.4% of the earlier balance.

The principal dates show how the debt disclosure fits into the wider policy response:

• June 30, 2025: Gas circular debt stood at Rs3.288 trillion.
• June 30, 2026: Gas circular debt reached Rs3.631 trillion, with a further Rs1.823 trillion in supplier payables.
• August 19, 2026: Details emerged of a proposal submitted to the Cabinet Committee on Energy to settle about Rs1.49 trillion in gas liabilities.
• October 15, 2026: Winter supply planning highlighted continued disruption to LNG shipments through the Strait of Hormuz.

Malik said the Circular Debt Management Plan was being finalised through consultations before submission to the relevant approving body. Subject to approval, it would be shared with the International Monetary Fund under Pakistan's existing policy and reform framework.

How the proposed settlement would be funded

The Petroleum Division's settlement proposal submitted to the Cabinet Committee on Energy, chaired by Prime Minister Shehbaz Sharif, identified five sources of money. Together, their stated amounts total Rs1.495 trillion, broadly matching the proposed Rs1.49 trillion settlement.

• Rs540 billion from additional dividends from Oil and Gas Development Company, Pakistan Petroleum and Government Holdings Pvt Ltd.
• Rs270 billion from a petroleum levy of Rs5 per litre.
• Rs590 billion from reducing LNG cargoes and replacing imported LNG with domestic natural gas.
• Rs80 billion from LNG price recovery.
• Rs15 billion from take-or-pay claims.

The Rs590 billion assigned to LNG reductions and gas substitution is the largest component, accounting for about 39% of the proposed funding. Additional company dividends represent about 36%. Together, these two measures would supply roughly three quarters of the total.

Oil and Gas Development Company and Pakistan Petroleum are also among the exploration companies affected when gas utilities take fuel without paying promptly. The proposal connects the settlement effort to additional dividend income from companies within the same energy chain.

The petroleum levy would place part of the cost on users of petroleum products. At the stated annual sales volume of 18 billion litres, Rs5 per litre would generate Rs90 billion a year. Reaching Rs270 billion would require the equivalent of three years at that sales volume and levy rate.

The settlement's approval status, collection timetable and relationship to the final Circular Debt Management Plan were not specified in the disclosures. Malik described consultations as continuing, while the August account described a proposal already submitted for consideration.

Why the accounting needs a common definition

The Petroleum Division has engaged the World Bank to help define circular debt through consultations with gas sector participants. The bank has also developed a reporting tool, while the government was reported to have reached an understanding with the IMF and World Bank on the net financial burden borne by the Sui gas companies because of policy and regulatory decisions.

A common definition matters because the debt figures used in different policy discussions vary. Malik's parliamentary reply put power company receivables at Rs131 billion, tax receivables at Rs210 billion and litigation amounts at Rs59 billion. The August settlement account used Rs123 billion, Rs211 billion and Rs58 billion respectively.

The Petroleum Division also suggested that the Oil and Gas Regulatory Authority review tariff shortfalls and surpluses against the final revenue requirement for 2026. That exercise would update the amount utilities were entitled to recover and the gap left after actual revenues.

The wider energy figures also contain a difference: Malik gave gas circular debt of Rs3.631 trillion, while a June 2026 energy accounting analysis used approximately Rs3.611 trillion and a combined gas and power balance of Rs5.286 trillion.

Using Malik's gas figure alongside the Rs1.675 trillion power sector balance gives Rs5.306 trillion in combined circular debt. The Rs5.454 trillion headline in the parliamentary reply covers gas circular debt plus gas supplier payables, so the two totals have different scopes.

Electricity figures show why annual additions matter

Pakistan's power sector offers a useful comparison between the amount outstanding at a particular date and the financial pressure created during a year. Power circular debt stood at Rs1.675 trillion in June 2026, up Rs61 billion from Rs1.614 trillion a year earlier.

During the 2025–26 financial year, however, gross additions reached Rs609 billion. Reductions and accounting adjustments brought the reported flow to around Rs364 billion, while payments against accumulated debt of around Rs302 billion helped limit the rise in the closing balance.

The power figures identify around Rs262 billion linked to operational inefficiencies at electricity distribution companies, Rs64 billion from weak payment recovery and Rs194 billion from K-Electric's non-payment. They show several routes through which fresh obligations enter the energy chain.

Power circular debt had previously fallen from Rs2.393 trillion at the end of the 2023–24 financial year to Rs1.614 trillion at the end of 2024–25, a reduction of about Rs780 billion. The government attributed that improvement to better distribution company performance, negotiated relief on late payment interest and broader economic improvements.

For gas reform, the practical lesson is to track both the existing balance and new additions. A monthly statement showing the opening balance, new liabilities, adjustments, payments and closing balance would let readers see how much relief came from settlements and how much came from improved operations.

LNG savings face a difficult supply environment

The settlement proposal assigns Rs590 billion to fewer LNG cargoes and substitution with domestic gas. Pakistan's supply difficulties make the timing and execution of that measure especially consequential.

The August account described Qatari LNG deliveries being halted amid the US-Iran war, with replacement cargoes bought on the spot market reaching $19 per million British thermal units, a measure of energy content. Normal Qatari cargo prices were put at $12 to $13 for the same quantity of energy.

At those prices, a replacement unit of energy cost roughly 46% to 58% more. The expensive fuel was supplied to power plants, with its cost recovered from electricity consumers, connecting LNG procurement decisions directly to power bills.

By October, Pakistan's winter gas supply warning described a proposed requirement for 24 cargoes on the Sui Northern network between November 2026 and February 2027, including two contingency shipments. Petroleum Division figures showed only 10 scheduled cargoes arriving under Pakistan State Oil's Qatar arrangement between March and September, while 40 were not delivered under force majeure.

Force majeure is a contract provision used when extraordinary events prevent delivery obligations from being met. The winter plan gave households priority if shortages became severe, leaving industry, power plants, fertiliser producers and compressed natural gas stations exposed to cuts.

Reducing imports can save money when domestic production replaces them at a lower cost. A supply shortfall creates a different outcome: authorities must choose between expensive replacement purchases and less gas for consumers.

Domestic reserves set the limits on substitution

Malik's reply on Pakistan's recoverable reserves adds a physical constraint to the financial plans. He put total recoverable oil at 1,378 million barrels, of which 1,102 million had already been produced, leaving 276 million barrels.

Those figures mean roughly 80% of the stated recoverable oil total had been extracted and about 20% remained. Recoverable reserves refer to quantities considered capable of being extracted, rather than all oil present underground.

For natural gas, Malik gave a total recoverable volume of 68,803 billion cubic feet, with cumulative production of 48,140 billion cubic feet and remaining recoverable reserves of 20,664 billion cubic feet. On those figures, around 70% had been produced and about 30% remained.

Domestic substitution therefore depends on what fields can deliver, when that gas can reach consumers and what it costs. The reserve totals describe the remaining resource; an import replacement programme also requires production capacity and suitable pipeline connections.

Market reform would change pricing and responsibility

Finance Minister Senator Muhammad Aurangzeb chaired a review of a proposed gas restructuring roadmap that is to go to the prime minister. The framework calls for phased deregulation, more competition, improved utility performance and a resolution of legacy circular debt.

The review focused on cross-subsidies, unaccounted-for-gas losses and mismatches between supply and demand. Cross-subsidies occur when one customer group pays more to help keep another group's price lower. Unaccounted-for gas is the gap between gas entering a network and gas recorded as sold, including losses and measurement or billing problems.

The proposed framework draws on gas market reforms in Türkiye and the United Kingdom while taking account of Pakistan's institutions and consumer needs. Its stated aims include more private investment, more direct transactions between businesses, more stable pricing and lower losses through performance incentives.

The finance ministry said the transition should protect regulated consumers and maintain secure supply. Addressing old debt and deciding how subsidies are funded would be central tasks for any restructured gas companies.

The Cabinet Committee on Energy has also approved amendments to the National Electricity Plan 2023–2027 and the high level design of the National Integrated Energy Plan 2027–2060. The latter brings energy security, economics, fair access and environmental concerns into a shared planning framework.

For consumers, the link between these initiatives is concrete. A decision to import less LNG changes gas availability; a decision to divert gas changes power generation costs; and a decision to recover old liabilities changes who pays. Coordinated planning would put those choices into the same calculation.

Key Points

• Gas circular debt and supplier payables totalled Rs5.454 trillion as of June 30, 2026.
• Circular debt was Rs3.631 trillion, including Rs1.783 trillion in late payment surcharges.
• Domestic suppliers were owed Rs1.479 trillion and LNG suppliers Rs344 billion.
• A proposed settlement of about Rs1.49 trillion relies on dividends, a petroleum levy, LNG savings and recoveries.
• The proposed Rs5 per litre levy would raise Rs90 billion annually at the stated sales volume.
• Gas market restructuring would address old debt, subsidies, network losses and competition.
• Remaining recoverable reserves were put at 276 million barrels of oil and 20,664 billion cubic feet of gas.