IMF demands major levy on captive power gas to level industrial power costs

ISLAMABAD: The International Monetary Fund (IMF) has insisted that Pakistan impose a significant levy on gas supplied to industrial captive power plants (CPPs) to remove any cost advantage between grid power and in-house electricity generation. Under the $7 billion Extended Fund Facility (EFF) signed in September, Pakistan is required to cease gas supply to CPPs by January 2025 as part of a key structural benchmark to qualify for the second of seven $1 billion disbursements in March. Both parties are set to meet for the first biannual review in late February.

The agreement includes a commitment from Finance Minister Muhammad Aurangzeb and State Bank Governor, Jameel Ahmad to halt captive power usage by the end of January 2025. However, under pressure from the powerful industrial sector, especially textile exporters and gas utilities like Sui Northern Gas Pipelines Limited, the petroleum division is advocating for a reversal of this commitment, citing a potential surplus of around 250 LNG cargoes over five years.

Attempts to persuade the IMF to alter the benchmark were met with resistance. The IMF suggested imposing a levy of Rs1,700-1,800 per million British thermal units (mmBtu) on gas supplied to CPPs, raising gas prices from approximately Rs2,800-3,200 to about Rs5,000 per mmBtu. This proposal has been rejected by industrial consumers, who may resort to alternative fuels, such as coal or recycled materials, instead.

A finance ministry official confirmed that the IMF’s benchmark remains unchanged, insisting on adherence to commitments. The IMF’s stance is that CPPs should either rely on the electricity grid or pay equivalent prices, effectively removing gas incentives.

Petroleum Minister Dr Musadik Malik recently criticised the caretaker government’s agreements that limit the ability to challenge the IMF’s demands, arguing they are against national interests and economic viability.

Gas companies warn that disconnecting gas to industrial CPPs could lead to significant financial losses exceeding Rs400 billion a year for Pakistan State Oil (PSO) and gas companies like SNGPL and SSGCL. These firms contend that liabilities from power companies have been unjustly transferred to the petroleum sector, creating financial instability.