Govt Increases Gas Rates on Captive Power Plants to Meet IMF Demands

The government has been forced to immediately implement a 23% increase in gas rates for industrial captive power plants (CPPs) while scaling back plans for substantial power rate reductions, as negotiations continue with the visiting International Monetary Fund mission for the release of approximately $1.1 billion in the coming weeks. The IMF team, led by Nathan Porter, has taken a firm position on the ‘grid levy’ for natural gas or LNG supplied to industrial CPPs. In response, the government swiftly completed all necessary procedures to impose a Rs. 791 per million British thermal unit (mmBtu) grid levy effective March 7, 2025, providing documentation to the IMF representatives. “In exercise of the powers conferred by sub-section (1) of section 3 of the Off Grid (Captive Power Plants) Levy Ordinance, 2025 (I of 2025), the federal government is pleased to notify that the rate for the purpose of sub-section (1) of the said section 3 shall be 791 rupees per million British thermal units,” stated a notification issued by Petroleum Secretary Momin Agha. This increase brings the total price to Rs. 4,291 per mmBtu, following an earlier Rs. 500 hike in gas rates for this category. The increases will continue under the ordinance, with the government set to raise the grid levy by 10% in July 2025, followed by 15% in February 2026, and another 20% by August 2026. These incremental hikes will push the final price close to Rs. 6,000, making gas supply prohibitively expensive and forcing industry to shift to the national power grid. IMF had rejected proposals for an Rs. 8-10 per unit reduction in power rates through elimination or cuts in sales tax rates, citing the significant financial impact on the budget. However, a more modest reduction of Rs. 2-2.5 per unit in the base rate, including associated lower taxes, may be possible through a combination of additional revenue from the grid levy, revisions to power purchase agreements with independent power producers, lower interest payments, and exchange rate stability. This adjustment could be implemented by next month or July. The Off Grid Levy Ordinance was promulgated effective January 30 as required by the IMF, but the government delayed notifying the levy rate. This delay resulted in an increased rate to account for the lapse. Under the ordinance, collections from the levy will help reduce power tariffs for other consumers. The levy applies in addition to notified rates for natural gas or RLNG. Authorities must “calculate levy rate taking into account the difference of power tariff of industrial B3 category notified by Nepra and the self-power generation cost of CPPs at the gas tariff notified by Ogra.” If a CPP fails to pay the levy on time, it would face recovery actions under subsection (2), and persistent default could result in termination of gas supplies. The IMF mission is now focusing on the implementation of agricultural income tax beginning July 1, 2025, engaging with provinces individually and collectively for clarity, while also addressing concerns in the retail and real estate sectors.