ISLAMABAD: Pakistan has assured the International Monetary Fund that it will abolish the existing Rs140 billion gas cross-subsidy mechanism for protected and certain non-protected consumers by January 2027, replacing it with a targeted subsidy system linked to household income under the Benazir Income Support Programme (BISP).
Senior officials from the Petroleum Division said the transition forms part of a structural benchmark agreed under Pakistan’s IMF programme and must be completed within the specified timeline.
Under the proposed framework, subsidised gas tariffs based on consumption slabs will be discontinued. Instead, all domestic consumers will be charged the full average gas tariff, while financially vulnerable households will receive direct cash support through BISP based on income eligibility rather than gas usage levels.
“We will have to complete the transition by January 2027 under the structural benchmark of the IMF programme,” senior Petroleum Division officials stated.
Currently, the subsidy system is financed through cross-subsidisation by higher-paying sectors, including captive power plants operated by export-oriented industries, industrial consumers, commercial entities, CNG stations, cement manufacturers, and affluent domestic consumers.
Officials said the existing cross-subsidy mechanism amounts to nearly Rs140bn annually. The average gas tariff presently stands at approximately Rs1,750 per MMBtu.
The Petroleum Division clarified that the federal government does not directly finance subsidies for protected and non-protected gas consumers through budgetary allocations. Instead, lower domestic tariff slabs are sustained by imposing higher tariffs on industrial and commercial consumers.
Following implementation of the revised tariff structure, all consumer categories are expected to pay a uniform average gas tariff of Rs1,750 per MMBtu, effectively ending the current cross-subsidy regime.
The move is part of broader energy sector reforms aimed at improving financial sustainability, reducing market distortions, and aligning Pakistan’s energy pricing mechanisms with IMF-supported economic restructuring measures.
Story by Khalid Mustafa
