Govt seeks overhaul of gas surcharge law to tackle defaults, circular debt

Islamabad: The government is seeking comprehensive changes to the Gas Development Surcharge (GDS) law to tackle issues like defaults, a circular debt that exceeds Rs3.5 trillion, and the need for a modern regulatory framework. Petroleum Minister Ali Pervaiz Malik is set to introduce the Natural Gas (Development Surcharge) (Amendment) Bill, 2026 in the National Assembly on Monday, aiming to amend the 1967 Natural Gas (Development Surcharge) Ordinance.

The current GDS law, originally designed to collect extra margins when consumer-end gas prices exceed Ogra's set prices, has become outdated in today's market conditions. The law fails to address scenarios where consumer prices fall below actual gas costs, resulting in a "negative GDS" with no legal way to account for or recover this deficit. Conversely, positive GDS is redistributed to provinces based on their gas production.

These legislative gaps have also led to audit objections over settlement timelines and discretion by gas utilities in handling GDS payments, causing late payment surcharge (LPS) liabilities to pile up. The Petroleum Division is worried about a significant backlog of GDS receivables, including both principal amounts and late payment surcharges, particularly from power plants struggling with the power sector's circular debt.

To tackle these problems, the proposed bill seeks to redefine "sale price" and "prescribed price," bring them under Ogra's statutory framework, and introduce legal definitions for "negative differential margin" and "late payment surcharge." This would provide mechanisms to handle situations where the government keeps consumer tariffs below the prescribed cost.