ISLAMABAD: Petrol price in Pakistan is likely to rise again as the federal government considers a petroleum levy increase to help clear the country’s mounting gas sector circular debt, officials familiar with the discussions said.

According to officials familiar with the matter, a proposal under review would raise the petroleum levy by Rs. 5 per litre on both petrol and high-speed diesel. The plan, recently examined at the level of Finance Minister Muhammad Aurangzeb, is part of a broader strategy to retire Rs. 1.7 trillion in gas sector liabilities over the next six years.

If approved by the federal cabinet and cleared with the International Monetary Fund (IMF), the levy on petrol would climb from Rs. 79.62 to around Rs. 85 per litre, while diesel would rise from Rs. 75 to about Rs. 80 per litre a direct increase that would ultimately be passed on to consumers nationwide.

A Costly Fix for a Deepening Crisis

Government estimates suggest the higher levy could generate approximately Rs. 540 billion over time. This revenue would form one pillar of a multi-pronged plan to confront the gas sector’s mounting circular debt, which has swollen to nearly Rs. 3.3 trillion as of the end of June, including Rs. 1.5 trillion in late payment surcharges alone.

Related: Petrol Prices in Pakistan Likely to Drop by Up to PKR 6.10 per Liter

Unlike the power sector—which relies on a dedicated surcharge to service its debt—the gas sector lacks a guaranteed repayment mechanism. This gap has forced policymakers to search for alternative revenue sources to prevent the crisis from spiraling further.

Dividends, LNG Savings, and Recoveries

Beyond higher fuel levies, the government is also eyeing dividends from state-owned oil and gas companies, expected to contribute around Rs. 680 billion toward debt retirement.

Officials said Oil and Gas Development Company Limited (OGDCL) could provide more than Rs. 250 billion, Pakistan Petroleum Limited (PPL) about Rs. 230 billion, and Government Holding Private Limited (GHPL) nearly Rs. 200 billion.

In addition, the plan includes channeling Rs. 415 billion in savings generated by diverting imported LNG cargoes, along with Rs. 75 billion expected from recoveries. Notably, the Petroleum Division has proposed using these savings to retire debt rather than passing any relief on to consumers through lower gas prices.

IMF Pressure and Tough Conditions

The IMF has repeatedly emphasized the urgency of addressing gas sector circular debt through both stock retirement and timely tariff adjustments. In its staff-level assessment, the Fund acknowledged a Rs. 86 billion reduction in principal debt last year, thanks to cost-reflective tariffs—but warned that overall liabilities still increased due to rising late payment surcharges.

Under the current proposal, debt retirement would hinge on creditors agreeing to waive interest on late payment surcharges, mirroring a strategy previously used in the power sector.

Debate Within Government

While the Finance Division has broadly backed the plan, officials have raised concerns over the proposed timeline and whether dividend income should be treated as extra-budgetary resources or folded into regular fiscal projections.

Petroleum Minister Ali Pervaiz Malik confirmed that using dividends from state-owned firms is under active consideration, acknowledging that the gas sector lacks stable revenue streams. He pointed out that, in contrast, electricity consumers are already paying a Rs. 3.23 per unit surcharge to help clear power sector debt.

What Comes Next

Government sources say consultations between the Finance and Petroleum divisions are ongoing, with a finalized proposal expected to be presented to the cabinet soon. Officials stress that the gas sector debt plan is a key component of Pakistan’s wider reform commitments under the IMF program.

For consumers, however, the message is clear: another fuel price hike may be just around the corner, as the government turns to petrol and diesel to help pay off decades of accumulated energy-sector liabilities.