Government Raises Gas Prices for Captive Power Plants to Comply with IMF Demands
The government has approved a 23% hike in gas prices for industrial captive power plants (CPPs) to comply with the demands of the International Monetary Fund (IMF). Simultaneously, the plan to cut electricity prices has been deferred. The move is part of the negotiations with the IMF for the release of about $1.1 billion.
New Grid Levy on Captive Power Plants
The IMF, fronted by Nathan Porter, has pushed for the imposition of a ‘grid levy’ on natural gas and LNG to industrial captive power plants. As a result, the government has formally fixed the grid levy at Rs. 791 per million British thermal units (mmBtu), effective from March 7, 2025.
A notification issued by Petroleum Secretary Momin Agha read:
“In exercise of the powers granted by the Off Grid (Captive Power Plants) Levy Ordinance, 2025, the federal government is pleased to announce that the rate will be 791 rupees per mmBtu.”
The hike takes the overall gas price for captive power plants to Rs. 4,291 per mmBtu, following a previous Rs. 500 price increase.
More Gas Price Hikes Planned
The government has also scheduled further phased hikes under the new ordinance:
- July 2025: 10% hike
- February 2026: 15% hike
- August 2026: 20% hike
All these increases will bring the terminal price of gas to almost Rs. 6,000 per mmBtu, rendering gas supply out of reach for industries. Consequently, most industries could turn to the national power grid.
Electricity Rate Reduction Plans Impacted
The IMF has turned down the government’s suggestion to cut electricity prices by Rs. 8-10 per unit through tax cuts on the grounds of its fiscal impact. Yet, a smaller cut of Rs. 2-2.5 per unit could be feasible by:
- Boosting revenue from the grid levy
- Reworking power purchase agreements
- Lowering interest payments
- Ensuring exchange rate stability
These changes would be made effective by June or July 2025 if approved.
New Tax Policies Under Discussion
IMF is also advocating the imposition of agricultural income tax from July 1, 2025. Talks with the provincial governments are in progress. Discussions for taxation of retail and real estate industries are also ongoing.
Impact on Industries
The Off Grid Levy Ordinance that came into force on January 30, 2025, guarantees that revenue generated through the levy will contribute to the reduction of power tariffs for other consumers. However, captive power plants have to pay the additional levy in addition to prevailing gas prices.
A captive power plant will be charged penalties, including termination of the gas supply, if it is not paid within the due date.
