IMF Allows Pakistan to Cut Captive Gas Levy by Up to 60%

Pakistan has secured conditional approval from the International Monetary Fund to revise the formula used for calculating the captive gas levy, a move that could significantly reduce gas prices for industrial consumers using captive power plants for in-house electricity generation.

Under the existing pricing method, the captive levy stands at Rs. 1,303 per mmBtu. With the proposed weighted-average formula, that figure could fall to around Rs. 522 per mmBtu. While the full 60% decline may not materialize every month, trends over the past 10 months indicate that industrial users could see levy reductions ranging from 30% to 60%.

The change was reportedly requested by Petroleum Minister Ali Pervaiz Malik during Pakistan’s third review talks with the IMF last month. At the time, the lender had said it would assess the possibility of using average tariffs, but had stopped short of approving the proposal.

Even with the formula change, the IMF has not relaxed its broader stance on discouraging captive power generation through gas. It has rejected Pakistan’s requests to freeze the additional 15% levy and to exempt efficient captive plants from the charge.

Instead, the Fund has asked the government to proceed with raising the levy to 20%, arguing that a higher rate remains necessary to maintain pressure on industrial users to shift back to the national grid.

The report said the IMF has also linked the revised formula to electricity demand from the national grid. If industrial power consumption from the grid declines, the government may be required to impose the 20% levy earlier than the planned August timeline, potentially as soon as July. In a more severe demand drop scenario, the levy could even be pushed above 20%.

The captive levy is calculated by measuring the difference between Nepra-notified B3 industrial power tariffs and the cost of self-generation using gas tariffs notified by Ogra. The policy is intended to make captive generation less attractive and push industries toward grid electricity, despite longstanding complaints from businesses that grid power remains too costly.

Government officials have told the IMF that the levy has hurt gas utilities as well. They argued that the policy has contributed to losses at Sui companies, partly because imported gas was redirected to lower-paying consumers. During the first half of the current fiscal year, the Sui firms reportedly posted losses of Rs. 104 billion, while collections from the captive power levy also fell short of expectations.

Industries, meanwhile, have increasingly turned to alternatives such as rooftop solar to avoid high electricity costs. This shift has created fresh concerns within policymaking circles, with some officials now considering additional regulatory hurdles for solar adoption.

The IMF reportedly views the captive levy as a punitive instrument aimed at discouraging inefficient in-house gas-based power generation. However, the transition to grid electricity has raised costs for many industrial consumers, especially export-oriented sectors already facing pressure on competitiveness.

IMF wants to ensure that industries that have already moved from captive generation to the national grid do not revert to gas-based power once the revised levy formula comes into effect, said the report.