ISLAMABAD: The government is all set to extend off-the-grid levy to private sector companies — commonly referred to as third-party entities — that purchase gas from Exploration and Production (E&P) companies at auctioned prices under amended E&P Policy 2012 and supply it to industrial units operating Captive Power Plants (CPPs).
A summary for this policy extension has been prepared following legal advice from Law Division. After receiving input from the Finance Division, summary will be presented to federal cabinet for final approval. Petroleum Minister Ali Parvaiz Malik said off-the-grid law had been enacted before his appointment. He emphasised government is bound to implement these measures under IMF discipline.
“The law says levy is applicable on industrial units with CPPs using gas from state-owned utilities — Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) and other companies”, he said.
The decision comes in response to directives from International Monetary Fund (IMF), which has been urging Pakistan to discourage CPPs and promote industrial reliance on national electricity grid.
The goal was to shift at least 2,000MW of industrial load back to grid-based electricity. The amended E&P Policy 2012 allows E&P companies to sell up to 35pc of new gas discoveries to third-party buyers, including those supplying gas to CPPs.
Both local and foreign E&P firms are increasingly concerned government’s backtracking on third-party gas sale mechanism could derail entire reform agenda. The 35pc direct sale channel was expected to improve cash flows and revive exploration activities.
Its collapse, industry insiders warn, could result in loss of promised $5 billion in investment and further damage investor confidence. The industry stakeholders warn extending the levy to private sellers could severely damage the sector.
A senior executive from one E&P company cautioned the move could endanger $5 billion in promised investments. If third-party sellers exit the market due to unviable costs, E&P companies would be forced to sell gas to cash-strapped state-owned utilities at policy-determined rates despite SNGPL and SSGC collectively owing over Rs1,500 billion to producers. The petroleum minister noted third parties may still supply gas to industrial units without CPPS, but officials admit most export-oriented industries already rely on their own power generation. Estimates suggest over 1,000 CPPs are currently operational across Pakistan.
The off-the-grid levy was introduced in February 2025 at 5pc and rose to 10pc in July. It is set to increase to 15pc in January 2026 and 20pc by August 2026. Export-oriented industries, particularly textiles, are already grappling with high gas prices, paying up to Rs3,500 per MMBTU, which translates to $15.36, far exceeding global LNG spot rates.
As a result, many industries have drastically reduced their gas intake from SNGPL and SSGC, dropping from 350 million cubic eet per day (MMCFD) to just 100MMCFD.
In response to surging costs, numerous industries began sourcing gas from private third-party sellers under deregulated policy. However, proposal to apply off-grid levy to these private transactions now threatens viability of this alternative route.
Private sector gas suppliers argue after factoring in auctioned prices, royalties, taxes, windfall levies, transmission costs and Unaccounted-For Gas (UFG) losses, additional levy will make it economically infeasible to supply gas to CPP users. Industry sources warn if implemented, this could force private gas players out of the market altogether.
According to official data, gas usage by CPPs in SNGPL network has plummeted from 150MMCFD to just 26 MMCFD. In other regions, consumption has fallen from 200MMCFD to 95 MMCFD. These figures fall far short of budgeted assumption of 350MMCFD in federal fiscal plan.
As a result, Rs105 billion in projected revenue from off-grid levy now appears unachievable, with critics blaming unrealistic projections by bureaucrats in Islamabad.
Historically, Pakistan’s export sector, especially textiles, has relied on CPPs running on a mix of local and imported gas to ensure uninterrupted and high-quality electricity for production. But IMF-mandated gas price hikes and phased introduction of off-grid levy have significantly increased input costs.
Many units are now shifting to alternative fuels, such as biomass and wood, to maintain operations and fulfil export orders. “At $15.36 per MMBTU, it is no longer commercially viable to operate CPPs”, said one government official, adding many exporters have abandoned gas altogether.
Under the revised E&P Policy 2012, approved by Council of Common Interests (CCI) in January 2024, E&P companies were granted the right to sell 35pc of their unallocated gas from new discoveries to private buyers through competitive bidding. This deregulated model was designed to bypass circular debt-ridden state gas utilities and improve liquidity.
The policy was backed by Special Investment Facilitation Council (SIFC) and a high-level commission led by Deputy Prime Minister Ishaq Dar. In a high-profile interaction with Prime Minister Shehbaz Sharif, E&P firms pledged $5 billion in new investment, contingent upon the full implementation of this framework.
Sources within Petroleum Division now confirm Law Division has advised extending off-grid levy to private gas sellers, originally applicable only to SNGPL and SSGC. A summary for cabinet approval is currently under review.
Petroleum Minister Malik maintains this step is necessary to ensure a level-playing field between public and private gas sellers. However, many senior officials and legal experts criticise the advice as inconsistent.
While acknowledging third-party sales fall under a deregulated regime, Law Division simultaneously treats them as regulated once they supply gas to CPPs. The Law Division has further suggested OGRA should determine tariffs for third-party sellers and that levy be applied based on OGRA-notified rates.
Legal experts, however, argue this contradicts the intent of amended E&P Policy, which was meant to minimise regulatory roadblocks and encourage market-based pricing. Some suggest interpretation could be challenged in court.
The CCI’s 2024 decision was explicit: E&P companies could sell a portion of their gas directly to OGRA-licensed third parties without further government approvals. This policy applies to all unallocated gas discoveries made under Petroleum (E&P) Rules of 1998, 2001, 2009, and 2013. The intent was to liberalise upstream sector, reduce reliance on imported fuel and fix circular debt through transparent, market-driven transactions.
The policy also gave third-party buyers multiple transport options, including use of existing Sui company networks, building their own pipelines or setting up virtual pipelines, subject to regulatory approvals. OGRA was required to process license applications within 90 days, and Sui companies had 60 days to respond to network access requests. Failure to respond would result in automatic approvals.
Now, as government moves to impose off-the-grid levy on these transactions, entire framework is under threat. Energy analysts warn this reversal will signal regulatory instability and raise red flags among potential investors.
Without timely intervention, Pakistan risks losing a rare opportunity to strengthen its domestic gas sector, attract investment, reduce dependency on imported fuels, and break vicious cycle of energy sector inefficiencies and debt, they said.