Talks between Pakistani authorities and the International Monetary Fund (IMF) have stalled over fuel prices and a proposal to write off Rs1.4 trillion in receivables owed to the country’s gas companies.
The IMF has called for any relief under the fuel compensation scheme to be delivered through a targeted mechanism. Pakistani officials believe the compensation for motorcyclists and small-car owners is unlikely to be withdrawn before the initial three-month period ends, although extending the scheme beyond that period could prove difficult.
IMF Questions Cost of Petrol Relief
According to officials, the IMF believes the actual cost of the fuel compensation scheme could exceed the government’s initial estimate of Rs75 billion for three months.
The Fund has also maintained that any assistance should be specifically targeted rather than taking the form of a broad fuel subsidy.
Pakistan had previously committed to avoiding fuel subsidies and cross-subsidies. The commitment was breached last month, prompting the IMF to seek corrective measures during the ongoing review.
A detailed meeting on the gas-sector circular debt plan is expected next week as the IMF mission continues its work in Islamabad on the fourth review of Pakistan’s $7 billion programme alongside Article IV consultations.
Petroleum Division Challenges Current Fuel Pricing
The Petroleum Division has argued that domestic fuel prices do not fully reflect the relationship between import costs and consumer prices.
Officials said petrol is imported at roughly Rs250 per litre before taxes and margins, while consumers currently pay around Rs390 per litre.
Of the consumer price, nearly Rs110 represents taxes, while another Rs27 is attributed to margins.
The IMF’s position, according to officials, is that determining spending priorities ultimately remains the government’s responsibility.
Gas Sector Receivables Become Major Dispute
Another major point of disagreement is Pakistan’s proposal involving Rs1.4 trillion in recoverable receivables of Sui gas companies.
The IMF has pushed for relief involving accumulated receivables arising from delayed payments. However, the Petroleum Division has rejected a write-off, arguing that doing so could adversely affect gas distribution and exploration companies.
Officials have also maintained that the federal government cannot reverse its commitments to the gas companies.
The issue is expected to receive further attention during next week’s detailed discussions on the gas-sector circular debt plan.
Earlier IMF Demands on Circular Debt
The dispute follows earlier IMF demands concerning Pakistan’s inter-corporate debt and late-payment surcharges.
In a previous round of discussions, the Fund asked Pakistan to clear inter-corporate debt and waive late-payment surcharges estimated at around Rs1.7 trillion.
A committee constituted by the prime minister has been working on reforms since the spring, but the authorities and the lender have yet to reach a settlement on the issue.
The IMF has also objected to a proposal to use Rs850 billion in dividends from gas companies to retire debt, describing the measure as fiscally non-neutral.
Pakistan’s Rs3.6 Trillion Gas Circular Debt
The overall gas-sector circular debt is estimated at around Rs3.6 trillion.
The Petroleum Division has proposed settling the debt through tariff differential claims of the Sui companies. Under the proposal, proceeds would be used to make payments to Oil and Gas Development Company Limited (OGDC), Pakistan Petroleum Limited (PPL) and Government Holdings (Private) Limited (GHPL).
Incremental dividends would be directed only toward these three companies, in which the state holds significant stakes.
IMF Raises Questions Over Debt Settlement Plan
The IMF has questioned how the proposed structure would prevent potential leakage of additional proceeds to minority shareholders.
The Fund has also sought clarity on assumptions concerning additional revenue from the petroleum levy and savings expected from liquefied natural gas (LNG).
These questions have added another layer to negotiations over how Pakistan intends to reduce the gas circular debt without creating additional fiscal pressures.
Petroleum Division Defends Circular Debt Proposal
Pakistani officials argue that the accumulation of gas-sector debt originated from policy decisions that prevented the Sui companies from recovering their full costs.
According to the Petroleum Division, tariff claims restricted full-cost recovery while unpaid invoices accumulated across the energy chain.
The government’s proposed mechanism, officials contend, could clear long-standing receivables and help restore financial credibility among companies operating across the gas sector.
However, the IMF continues to seek assurances that the proposed settlement would be fiscally neutral and would not create new subsidy or cross-subsidy arrangements.
IMF Review Remains Focused on Fiscal Discipline
The disagreement over petrol compensation and gas circular debt highlights the broader fiscal challenges facing Pakistan under its IMF programme.
The current discussions involve not only fuel pricing but also the treatment of energy-sector liabilities, government commitments, subsidies and mechanisms for settling accumulated debt.
A resolution on the fuel compensation scheme and gas-sector receivables will be important for progress in the fourth review of the IMF programme.