The International Monetary Fund (IMF) has rejected Pakistan’s request to revise a key structural benchmark under its $7 billion Extended Fund Facility (EFF), demanding the imposition of a substantial levy on gas supplied to industrial captive power plants (CPPs), Dawn reported.
The move aims to eliminate the cost advantage CPPs hold over electricity generated from the national grid.
The IMF’s condition requires Pakistan to disconnect gas supply to CPPs by the end of January 2025. Meeting this commitment is crucial for the disbursement of the second $1 billion tranche scheduled for March, following a review in February.
However, the industrial sector, led by textile exporters, along with gas utilities such as Sui Northern Gas Pipelines Limited (SNGPL), has lobbied for a reversal of this commitment, arguing that disconnecting CPPs would create an LNG surplus in the system, impacting the entire supply chain. Officials claim the surplus could amount to 50 LNG cargoes annually, or 250 cargoes over five years.
Industrial stakeholders argue that the disconnection would harm export competitiveness, while gas utilities fear financial instability.
Despite these concerns, the IMF remains firm, proposing an additional levy of Rs1,700-1,800 per unit (mmBtu) on gas supplied to CPPs. This would raise the gas price to approximately Rs5,000 per unit, up from the current Rs2,800-3,200.
Gas utilities and the Pakistan State Oil (PSO) warn that disconnecting CPPs could lead to annual losses exceeding Rs400 billion, further aggravating the financial woes of SNGPL and SSGCL.
These companies already struggle with payments to PSO for LNG offtake, which is bound by a sovereign contract with Qatar on a “take or pay” basis.
The dispute also risks shaking investor confidence in Pakistan’s energy infrastructure, which includes over $6 billion in LNG-related investments and an annual LNG supply chain worth $4 billion.
Officials fear the disconnection of CPPs could severely impact energy-intensive industries, with the textile sector warning of export losses.
The IMF’s firm stance underscores the urgency of implementing structural reforms, but the path forward remains fraught with challenges for both the government and key stakeholders.
