IMF allows Pakistan to revise captive gas levy formula, cuts prices up to 60%

The International Monetary Fund (IMF) has allowed Pakistan to revise the pricing formula for the captive gas levy, a move expected to reduce gas costs for industrial consumers using in-house power generation by up to 60%, The Express Tribune reported. 

Under the revised methodology, the levy will be calculated using a weighted average of peak and off-peak B3 industrial electricity tariffs instead of relying solely on the peak rate. This adjustment is expected to lower the levy for March from Rs1,303 per mmBtu to around Rs522 per mmBtu, based on current tariffs.

Government officials said the actual reduction may vary between 30% and 60%, depending on tariff trends.

The decision follows a request made by Petroleum Minister Ali Pervaiz Malik during recent review talks, where the IMF had agreed to examine the feasibility of revising the formula.

However, the IMF has attached conditions to the relief, stating that it should not lead to a decline in industrial electricity consumption from the national grid. Officials said that if demand from the grid drops, the government may be required to increase the levy rate to 20% ahead of the previously scheduled timeline of August.

Sources indicated that the IMF has also maintained its position against freezing the existing 15% levy or granting exemptions to efficient captive power plants. It has instead advised increasing the levy to 20% if required to maintain price signals.

The captive power levy is calculated as the difference between electricity tariffs notified by the National Electric Power Regulatory Authority and the cost of generating electricity through gas-based captive plants at tariffs notified by the Oil and Gas Regulatory Authority.

The policy is aimed at discouraging industries from using gas for self-generation and encouraging a shift to the national grid.

Officials said that if electricity demand from the grid continues to decline, the IMF may require further increases in the levy beyond 20%.

The government informed the IMF that the existing levy has affected gas sector finances, with Sui companies reporting losses of Rs104 billion during the first half of the current fiscal year, alongside lower-than-expected levy collections.

Industrial consumers have also been shifting to alternative energy sources, including rooftop solar, amid high electricity tariffs.

According to sources, the IMF has emphasised that industries that have already transitioned to the national grid should not revert to gas-based captive generation following the revision in the levy formula.