Ittehad Chemicals: a case study in the shift away from captive power generation

When Ittehad Chemicals Ltd (ICL) released its calendar-year 2024 results this week, the headline numbers looked deceptively flat: revenue was broadly unchanged at Rs24.3 billion. Yet behind the still-water line lurked a decidedly choppier earnings story. Net profit slid 24% to Rs1.39 billion and earnings per share dropped from Rs18.26 to Rs13.86 as gross margin narrowed from 21% to 20%.

Management placed the blame squarely on energy costs. A presidential ordinance issued on 30 January 2025 and subsequently converted into law imposed a five-per-cent “off-the-grid” levy on the already-inflated price of natural gas and RLNG consumed by captive power plants (CPPs). At the same time, the Ministry of Energy raised the gas tariff for industrial CPPs by a further 23% in March under International Monetary Fund pressure. For ICL, which has historically relied on its own 35 MW gas-fired plant at Sheikhupura, the new regime inverted the cost equation: it is now cheaper to buy power from the Lahore Electric Supply Company (LESCO) than to self-generate. 

ICL has therefore shifted the bulk of its demand to the grid, operating its captive plant only during peak hours when grid outages threaten production continuity – a move the company confirmed during its post-results briefing. While the switch mitigates the immediate gas levy, it drags profitability because grid electricity incorporates capacity-payment surcharges designed to underwrite Pakistan’s oversized generation fleet. The twin forces explain why Ittehad’s gross margin deteriorated even further to 17% in the March 2025 quarter despite a 26% year-on-year rise in quarterly sales.