The energy sector in Pakistan has turned into a real tangle of circular debts, pricing distortions, and political expediency — and the latest moves around the petroleum levy (PL) are just the newest chapter in a very familiar story.

A few months back, the government tried to tackle the power sector’s circular debt, which had ballooned to over Rs2.5 trillion, by slapping a hefty surcharge on captive gas users. That didn’t raise enough money, so they turned to the PL on petrol and diesel, jacking it up to help cover power subsidies. Meanwhile, the gas sector’s own circular debt kept climbing — it has now officially crossed Rs3 trillion, including late-payment surcharges — and the government is quietly backing away from any meaningful increase in gas tariffs for domestic consumers.

Instead, the plan is to raise the PL even further to plug the gas pricing gap and related costs. Officially, the levy is sold as a way to clear both power and gas circular debts, and sometimes it’s even justified as funding road projects in Balochistan. But let’s be honest: it’s only a matter of time before someone comes up with another “noble” reason to push the PL higher still. The real driver is simple — the federal government needs the cash, and the PL is the easiest, most controllable way to get it.

Right now, international oil prices are sitting comfortably below $60 a barrel, giving the government a golden window to hike the levy without immediately pushing pump prices through the roof. Public anger stays manageable, and the federal exchequer gets the money. It’s no coincidence that GST on petroleum products is currently zero (meaning provinces get nothing from it), while the PL is around Rs80 per litre — with room to go up to Rs100. Under the NFC award, provinces take roughly 57.5% of GST proceeds, but the PL is 100% federal. That’s why the government has zeroed out GST and piled everything onto the PL — it keeps the revenue entirely in Islamabad’s pocket.

The same logic applies to gas pricing. Any increase in consumer gas tariffs would flow partly to gas companies (to cover their losses) and partly to the provinces (through the gas development surcharge and royalties). But the political heat for higher bills would fall squarely on the federal government. So rather than face that backlash, the Centre prefers to keep gas prices artificially low for domestic users and shift the burden onto petroleum consumers through a higher PL. In effect, people filling their cars and running generators are being asked to subsidise households that use piped gas.

This is classic policy distortion. There are only about 10 million registered gas consumers in the country, while petroleum products power virtually every vehicle, generator, and industrial engine — a vastly larger base. Why should a relatively small group of gas users be shielded at the expense of everyone else? Why should gas companies’ balance sheets keep deteriorating while the government pretends the problem can be solved by tweaking petroleum prices? And why does the Centre keep using these indirect, regressive levies instead of taking the tougher but more honest step of letting gas prices reflect actual costs?

The answer, unfortunately, is politics. Raising gas tariffs would hit millions of households directly, especially in Punjab and Khyber Pakhtunkhwa, where gas is used for cooking and heating. That’s a tough sell in an election year or when public sentiment is already fragile. So the government opts for the politically softer option: keep gas cheap, let the PL do the heavy lifting, and call it “reform” to keep the IMF happy.

True reform would mean passing on the real cost of gas to consumers, with targeted subsidies for the poorest, ending the cross-subsidy from petroleum users, and letting gas companies recover their legitimate costs so they stop bleeding cash. That would reduce wasteful usage, improve efficiency, and gradually shrink the circular debt. But it would also require the government to take responsibility for the political fallout — and that’s precisely what it’s avoiding.

As long as we keep relying on these patchwork, ad hoc fixes — higher PL here, zero GST there, another surcharge somewhere else — the underlying problems will only get worse. Circular debt will keep growing, policy will remain inconsistent, and consumers will continue to bear the cost of inefficiencies they didn’t create.

The current low oil-price environment is actually a rare chance to do things properly: align prices with costs, phase out distortions, and start building a sustainable energy pricing framework. But if we just use it as another opportunity to raise the PL and kick the can down the road, we’ll be right back here in a year or two, with even bigger debts and the same tired excuses.