The Petroleum Division, through gas companies, will begin issuing notices this week to disconnect gas supplies to Captive Power Plants (CPPs) as part of a structural benchmark under the IMF program, The News reported.
The process, aimed for completion by the end of January 2025, is critical to securing the continuation of the IMF agreement.
“If we fail to complete this by January, the loan program will be jeopardized,” a Ministry of Energy official stated.
However, this move could increase the annual circular debt of the gas sector by Rs400 billion, which currently stands at Rs2,700 billion.
The industrial sector, reliant on CPPs, currently purchases blended gas at Rs3,200–3,400 per MMBTU and cross-subsidizes Rs103 billion annually for protected domestic consumers. Without CPPs, the government would either have to cover this subsidy or raise gas tariffs for protected users.
Moreover, the disconnection of CPPs could lead to a $13 billion annual export loss, with exporters warning of reduced global confidence in Pakistan’s manufacturing capabilities.
The disruption could also cause production halts due to unreliable grid electricity supply, resulting in losses of foreign exchange, employment, and revenue for the Federal Board of Revenue (FBR).
During the IMF mission’s visit in November, the Petroleum Division highlighted these risks, arguing that CPPs currently consume 350 mmcfd of gas daily, which would be difficult to divert to other sectors at current rates.
The IMF showed a willingness to discuss the matter but insisted on shifting the industry to grid electricity to reduce capacity payments.
The industrial sector also expressed concerns over shifting to grid power, citing unstable electricity supply and the need for significant investments to adapt. Existing investments in gas-powered units would become sunk costs, further straining the sector.
Acknowledging these challenges, the prime minister directed an inter-ministerial meeting on November 29, attended by federal ministers of finance, commerce, petroleum, and power. Finance Minister Senator Muhammad Aurangzeb instructed the Power and Petroleum divisions to compile updated data on the impacts of severing CPPs from gas supply for IMF discussions.
Officials stated that altering the structural benchmark would require approval from the IMF executive board.
The Power Division noted that transitioning the industrial sector to grid electricity by January 2025 is infeasible due to the need for new grid stations, requiring at least 18 months and Rs25 billion.
why not just stop burning gas to make electricity?