ISLAMABAD: The government has officially notified the off-the-grid levy on captive power plants (CPPs) for April, May and June 2025 -- but the anticipated revenue from the measure is likely to fall well short of projections, as gas consumption by industrial units continues to plunge.
For April, the levy has been fixed at Rs570 per MMBTU, followed by Rs550 in May and Rs402 in June. However, senior officials have confirmed that the actual revenue collection will remain nominal due to a sharp decline in gas consumption by CPPs across the country.
According to official data, gas usage by captive power plants within the jurisdiction of Sui Northern Gas Pipelines Ltd (SNGPL) has plummeted from 150 million cubic feet per day (mmcfd) to just 26 mmcfd. Similarly, in other regions, consumption has dropped from 200 mmcfd to 95 mmcfd. This dramatic decrease has shattered budgetary expectations, which were based on an assumed consumption of 350 mmcfd — a figure critics say was unrealistically crafted by bureaucrats in Islamabad.
The government had earmarked Rs105 billion from the off-grid levy in the federal budget, a target now deemed virtually impossible to achieve.
The export-oriented industrial sector, particularly the textile industry, had long relied on CPPs using a blend of local and imported gas to ensure un-interrupted and high-quality power supply. However, under stringent conditions set by the International Monetary Fund (IMF), the government hiked the gas price for CPPs to Rs3500 per MMBTU and introduced a phased off-grid levy: 5 per cent starting February 2025, rising to 10 per cent in July, 15 per cent in January 2026, and peaking at 20 per cent by August 2026.
These cost escalations have severely impacted the export sector. Facing skyrocketing input costs, many industrial units have slashed gas consumption drastically, contributing to a broader decline in textile exports. “At $15.36 per MMBTU, running CPPs has become commercially unviable,” said one government official, noting that this rate is significantly higher than current international LNG prices.
The IMF-backed reforms were intended to encourage the industrial sector to switch from captive power generation to grid electricity, with estimates suggesting the shift would bring 2,000 MW of industrial load onto the national grid. Yet the transition has not occurred as planned. Rather than relying on the grid, many factories have turned to alternative energy sources such as biomass — particularly bagasse — and even wood-fired systems, which are being used to fulfill export orders amid soaring gas costs.
Adding to the controversy is a growing rift between the Power Division and the Finance Ministry over the use of revenue generated through the off-the-grid levy. The Power Division insists the funds should be directed towards reducing electricity tariffs, in line with the original policy. However, the Finance Division is reportedly reluctant to allocate the funds for this purpose, preferring instead to retain the revenue to help meet broader fiscal targets.
In a recent development, the Finance Division suggested to the Power Division to use its existing budget if it wishes to provide tariff relief. This tug-of-war has now reached the highest levels of government. The matter is expected to be taken up during the upcoming IMF review mission scheduled for September 15, 2025.
As Pakistan grapples with balancing fiscal discipline under IMF oversight and preserving the competitiveness of its export sector, the fallout from the off-grid levy may continue to reverberate across the economy with serious implications for industrial productivity, export performance, and future investment in energy infrastructure.