The IMF instructs Pakistan to impose a higher charge on gas supplied to CPPs
International Monetary Fund asks Pakistan to collect a higher charge on gas by the end of January 2025 to supply industrial captive power plants, with a commitment of that to Pakistan through the Extended Fund Facility, for $7 billion.
It would bring electricity from the national grid closer to par with power produced by industrial plants burning their own supplies of gas. The IMF insists that this gas supply must be cut off, or it will have to pay a premium to continue taking gas. Pakistan has to agree with this as part of a set of commitments if it wants the IMF to release the next $1 billion installment in March 2025.
What’s Happening?
The IMF has set a key condition for Pakistan, requiring the government to end gas supply to industrial CPPs by January 2025. Under this agreement, businesses that generate their own electricity using captive power plants must either shift to using grid electricity or pay the equivalent cost of grid electricity.
To make the transition fair, the IMF recommends levy at around Rs1,700-1,800 per unit of mmBtu over the current LNG price for CPPs. This would raise the cost of gas for such plants to around Rs5,000 per unit, sharply higher than the current price of Rs2,800 to Rs3,200 per unit, depending on global oil prices.
This increase in the gas prices should make the cost of running a captive power plant so high that will force industries either to move onto the national grid or find another source of electricity.
Why the IMF is Compelling This?
Pakistan agreed to this structural benchmark under its $7 billion IMF loan program. The IMF is strict on its decision and does not want to modify the deal at any cost despite opposition from local industries. This move is essentially aimed at eliminating the cost advantage that CPPs have over electricity supplied by the national grid.
The IMF argues that the current setup, where industries have access to cheaper gas for their own power generation, distorts the electricity market. The IMF’s goal is to level the playing field by encouraging industries to either pay the full price for their gas supply or transition to the grid.
What Are the Concerns?
Local industries, particularly in the textile industry, are worried that high gas prices will increase their costs and reduce competitiveness in the international market. Such industries are afraid that increased electricity prices will drive them out of business or move their production overseas, leading to potential job and export losses.
The gas companies are also concerned about this decision. They believe that the loss of gas supply to industrial CPPs would bring huge losses. According to estimates by the gas utilities, the loss would be around Rs400 billion per year through the cancellation of gas supply to these plants.
Pakistan Gas Sector Impact
The gas sector is already facing financial difficulties. Gas companies have argued that the shift away from gas-powered captive plants could lead to a default of Pakistan State Oil (PSO) and two major gas companies—Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL).
The government had already invested over $6 billion in LNG infrastructure, assuming gas would be consumed in power plants. However, with many of the plants under threat of shutting down, future. viability of investments is a worry.
What’s Next?
Pakistan has to go ahead and adhere to the demand of IMF before getting the loan’s second instalment. to be drawn down in March 2025. The government committed to abide by the IMF conditions but it remains to be debated on how it best can go for industries’ phase out without being on grid, as well.
Meanwhile, industries look for alternative energy sources that may not require electricity from the grid, such as using coal or old tires.
