Pakistan has raised the price of gas used by power plants located at export-oriented domestic industries — also known as captive power plants — by 17%, aiming to reduce inter-corporate, or circular debt.

The Oil and Gas Regulatory Authority (OGRA) announced the increase in gas prices for these units to PKR 3,500 per mmbtu ($12.59), up from PKR 3,000 per mmbtu, effective February 1, according to a notification issued Sunday.

Gas prices for all other consumer categories — including general domestic industry, commercial, cement, fertilizer, other power-generating companies, and compressed natural gas (CNG) pumps — remain unchanged, the notification stated.

The move aligns with Pakistan’s commitment under the $7 billion Extended Fund Facility agreement with the International Monetary Fund (IMF) to reduce subsidies and tackle circular debt in the gas sector, which has surged to PKR 2,800 billion.

Gas prices and circular debt

The circular debt in the gas sector has ballooned due to years of transmission and distribution losses and selling gas at below-market prices to incentivize industries and residential consumers.

A decade ago, the debt stood at PKR 200 billion but has since skyrocketed, said an official from the Ministry of Energy. Successive governments opted not to pass global price increases to consumers, exacerbating the debt burden.

Export-based industries had previously benefited from preferential gas prices to boost exports. Over the past five years, the price gap between gas for these industries and other sectors, such as commercial users, exceeded 30%.

Currently, general industries and commercial users pay PKR 3,990 per mmbtu compared to the revised price of PKR 3,500 per mmbtu for export-oriented power plants.

The government had initially planned to halt gas supply to these plants from February 1. However, it instead raised prices to match those of re-gasified liquefied natural gas (RLNG), a move aimed at convincing the IMF of its commitment to gradually reduce subsidies and lower circular debt, a gas sector expert noted.

‘Making exports uncompetitive’

Fawad Anwar, chairman, Pakistan Textile Council said such an increase will render Pakistani textiles uncompetitive on the global stage.

The government should pursue a policy of diversified exports and boosting receipts to stabilize economy. Instead, the latest move would risk investment in textile sector and would result in loss of jobs for millions of workers, he added.