The freezing of gas prices and diversion of liquefied natural gas (LNG) by successive governments have imposed a financial burden of Rs819 billion on the state-run gas utility Sui Northern Gas Pipelines Limited (SNGPL). The company has informed the government that it is unable to repay bank loans of Rs50 billion taken to clear receivables of Pakistan State Oil (PSO) on account of LNG supplies.
Accumulation of Circular Debt Since 2013
Sources told The Express Tribune that the gas sector has been grappling with the accumulation of circular debt since fiscal year 2013 due to inadequate or no increase in consumer prices by the government from time to time. This has prevented Sui companies from recovering the full cost of gas purchased from producers. Although the addition to gas-sector circular debt has been largely curbed since November 2023 due to consistent price revisions, the interest cost or late payment surcharge has continued to rise.
As of December 2025, SNGPL had receivables of Rs1,095 billion and late payment surcharge of Rs931 billion. The Petroleum Division informed the economic decision-making body that primary receivables of Rs819 billion were on account of tariff differential resulting from the government's decision not to revise consumer prices and the diversion of expensive re-gasified LNG to the domestic sector at lower tariffs.
SNGPL Seeks Extension in Sovereign Guarantee
SNGPL has now conveyed to the government its inability to retire a Rs50 billion loan and has requested an extension in the sovereign guarantee till June 30, 2030. According to sources, the Petroleum Division, with the assistance of the Task Force on Power Reforms and KPMG, developed the Gas Circular Debt Management Plan (GCDMP). This plan was presented to the International Monetary Fund (IMF) in March 2026 and again in May 2026. Subsequent queries from the IMF have also been responded to, and the final response is awaited.
The third review of the IMF's Extended Fund Facility states that the Petroleum Division has developed a gas CDMP expected to be rolled out in FY27 after necessary approvals.
Background of the Rs50 Billion Loan
The Economic Coordination Committee (ECC) of the cabinet, while considering a summary submitted by the Petroleum Division in 2023, agreed that the Finance Division would provide a sovereign guarantee along with a Letter of Comfort in favor of SNGPL for commercial borrowing of Rs50 billion on an immediate basis. Pursuant to the ECC decision, the Finance Division issued the sovereign guarantee in July 2023 to Allied Bank, Faysal Bank, and the National Bank of Pakistan amounting to Rs20 billion, Rs20 billion, and Rs10 billion respectively against running finance facilities obtained by SNGPL for making RLNG payments to PSO and Pakistan LNG Limited.
The ECC approved the validity period of the guarantee up to June 2026 with the stipulation that it would be a new facility and the Petroleum Division would comply with guidelines of the Finance Division. It further directed the Petroleum Division to provide cash-flow projections to ascertain SNGPL's capacity to retire the loans on expiry of their term.
Refinancing and Financial Constraints
Later, the Finance Division was informed that one of the consortium members, Faysal Bank, had requested SNGPL for early settlement of its share of financing. SNGPL initiated discussions with multiple banks and subsequently Meezan Bank showed its willingness to acquire the entire Rs50 billion financing at improved terms of three-month Kibor minus 30 basis points, compared to the existing one-month Kibor. This change is expected to result in estimated annual savings of Rs150 million in finance cost for the company.
Accordingly, the Finance Division was requested to issue a Letter of Comfort and sovereign guarantee in compliance with the ECC decision. The Petroleum Division informed the Finance Division about the financial viability of SNGPL, whereby the company reported that revision in consumer gas prices by the government helped contain the circular debt but it did not have the required funds to retire the previously accumulated debt. Besides, the RLNG diversion to the domestic sector and demand destruction in the captive power sector put financial constraints on SNGPL, making it difficult to pay off liabilities. Therefore, the company could not provide any viable mechanism to retire the Rs50 billion loan.
Now, the gas utility is seeking an extension in the sovereign guarantee issued to Meezan Bank.
