Gas price hike, off-grid levy cut nearly Rs100bn from state gas utilities’ revenue

Pakistan’s two state-owned gas utilities have suffered a combined revenue loss of nearly Rs100 billion after sharp increases in gas prices for captive power plants of export-oriented industries and the imposition of an off-the-grid levy under the International Monetary Fund programme, The News reported, citing officials and industry sources as saying.

Gas prices for captive power plants were raised to Rs3,500 per MMBtu, making fuel unaffordable for exporters and triggering a steep drop in consumption. In the network of Sui Northern Gas Pipelines Limited, industrial gas use has fallen to 25 million cubic feet per day from 180 MMcfd, while consumption in areas served by Sui Southern Gas Company has declined to 90 MMcfd from 210 MMcfd.

Despite the contraction in demand, the government has collected only Rs9 billion so far from the off-the-grid levy, far below the Rs105 billion target for the current fiscal year.

Industry representatives said higher gas prices and the levy have undermined export competitiveness, with gas costs rising to about $15.36 per MMBtu, above prevailing LNG prices. They said around 150 textile units have already shut down as input costs climbed.

The impact has widened after the levy was extended to third-party gas suppliers, private firms that buy gas from exploration and production companies through auctions and sell it to industrial users. Under the revised arrangement, the previously deregulated third-party market will face monthly tariff determination by the Oil and Gas Regulatory Authority after inclusion of the levy.

Third-party sales were permitted under the amended 2012 E&P Policy, allowing producers to sell up to 35% of gas at auctioned prices to ease liquidity constraints and attract investment. Industry sources said applying the levy to these supplies has weakened the policy’s intent and discouraged investment.

Exporters also pointed to high electricity tariffs of around 13 cents per unit, compared with a regional average of 5–7.5 cents, and renewed calls for withdrawal of cross-subsidies borne by industry. They said persistently high energy costs have contributed to falling exports since October 2025.

Separately, SSGC has sought permission to apply the levy to Fauji Fertilizer Company due to its captive power generation, a move referred by the Petroleum Division to the Law Division for legal advice. Officials said the levy applies to captive power plants of export industries, not fertilizer companies.

The off-the-grid levy was introduced at 5% in February 2025, raised to 10% in July 2025, and is scheduled to increase to 15% in February 2026 and 20% from August 2026. The government says the levy is intended to push industries to the electricity grid and help reduce power tariffs, but officials acknowledged that current collections are too small to materially impact electricity prices.