Pakistan’s $5 billion oil and gas investment at risk after off-grid levy imposed on third-party gas suppliers

Industry stakeholders have warned that a planned $5 billion investment in Pakistan’s oil and gas exploration sector is facing uncertainty after the government extended the off-the-grid levy to third-party gas suppliers. They said that this move has made gas distribution by private sector companies commercially unviable.

According to a report by The News, the new levy applies to third-party distributors who procure gas from exploration and production (E&P) companies at auctioned prices. 

Previously, the government had imposed the off-the-grid levy on Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) under an agreement with the International Monetary Fund (IMF). The gas price for captive power plants was initially raised to Rs3,500 per MMBtu, with a 5% levy set to take effect in February 2025. 

The levy is scheduled to increase gradually, reaching 20% by August 2026, which has resulted in a significant rise in the gas price for captive power plants to $15.36 per MMBtu, including the levy.

Universal Gas Distribution Company (UGDC) CEO Ghiyas Abdullah Paracha said that the company would now only collect the levy on behalf of the government, which could undermine the competitiveness of third-party suppliers in the gas market. He also noted that the details of the levy collection mechanism would be outlined in an upcoming Presidential Ordinance, which has yet to be finalised.

A letter from the Petroleum Division on January 13, 2026, formally designated UGDC as an agent for collecting the levy. A notification issued on January 9, 2026, added UGDC to the list of authorised levy-collecting entities under the Off the Grid (Captive Power Plants) Levy Act 2025.

Under the amended 2012 E&P Policy and third-party access rules, E&P companies were allowed to sell 35% of their gas through competitive bidding to private distributors. Companies like UGDC purchased gas at auctioned prices, close to $8 per MMBtu, and paid various taxes and charges while operating on slim margins. This model helped improve cash flows for E&P companies, which had faced delayed payments from Sui Gas companies, contributing to the sector’s circular debt of Rs3.2 trillion. As a result, E&P companies had committed to a $5 billion investment in exploration and production.

However, the imposition of the off-the-grid levy on third-party distributors has undermined the entire model. Unlike Sui Gas companies, which procure gas at an average price of around $4 per MMBtu and pass the levy to consumers with guaranteed margins, third-party distributors now face the levy without any viable profit margin, putting their business model in jeopardy.

Industry stakeholder have expressed concern that this policy shift has undermined the amended 2012 E&P Policy, putting future upstream investments at risk and discouraging private participation in gas distribution. This move comes at a time when domestic energy production is already under strain, further exacerbating the country’s energy crisis. 

Additionally, some fertiliser companies continue to receive gas for captive power plants without being subject to the levy, raising concerns about selective enforcement and sectoral discrimination.

Stakeholders urged the government to take corrective action immediately, warning that failure to do so could result in the loss of critical upstream investment and further damage Pakistan’s export competitiveness.