ISLAMABAD: The export-oriented industrial sector has rejected the alternative proposal of the government asking for an increase in gas or RLNG prices for captive power consumers to Rs4,100 per MMBtu, plus a 5 percent levy, with further gradual increases in the base price and the levy to 20 percent over the next 18 months.
The development comes as IMF showed no flexibility on the issue of disconnecting gas supply from the Captive Power Plants (CPPs) by January 31, 2025.
The industry asked the government to place a deregulated RLNG regime for gas supply to captive power plants, allowing industries the autonomy to secure energy supplies of their choosing, independently at competitive international prices.
The gas price of Rs4,305 per MMBtu (inclusive of the levy) proposed by the government, equivalent to approximately $15.43 per MMBtu, is almost twice the international LNG price and financially unfeasible for the industry compared to $6-9/MMBtu in competing economies, reveals the letter written on January 11, 2025 by APTMA to SIFC’ National Coordinator Lt General Sarfraz Ahmed. “The proposed gas price will serve nothing, but to dis-incentivize captive power generation and push industries towards the national grid. The reliance of the textile sector on gas-fired captive power generation is driven by operational reliability and cost-efficiency requirements, neither of which can currently be met by the national grid.”
APTMA warned that the proposed shift to the grid will escalate production costs and disrupt industrial operations, resulting in significant export losses of $3-6 billion per annum and up to 3 million job losses in the immediate aftermath, and undermining the industry’s international competitiveness and long-term sustainability.
APTMA also highlighted a grim aspect arguing that shutting off gas supply would ultimately compel industries to adopt less efficient and environmentally harmful alternatives such as coal or furnace oil that conflict with global decarbonization trends, net-zero requirements, and policies like the EU Carbon Border Adjustment Mechanism (CBAM).
“At present, electricity from the grid is priced at 13-16 cents/kWh, significantly higher than the rates in competing economies like China, India, Vietnam, Bangladesh, and Uzbekistan, where electricity is available at 5-9 cents/kWh.”
“So industry is left with no option but to arrange its gas supplies under a deregulated regime and BtB RLNG business model.” APTMA sensitized the SIFC through its letter about its plan to import and use the RLNG under BtB model saying, this would also include permission for industries to import their own RLNG or procure domestic gas through the 35% direct access policy approved by the CCI. The export industry in its correspondence says that the approval of its request will allow the government to meet its IMF commitments by phasing out captive power usage from the gas sector, while ensuring export-oriented industries to retain access to affordable energy. “By enabling industries to choose their fuel sources and secure energy at globally competitive prices, the government will avoid jeopardizing the sustainability of Pakistan’s largest export sector and avert significant export and employment losses. Crucially, this proposal requires no subsidies or direct government financial involvement.”
As an immediate step, the industry requested SIFC that APTMA be facilitated in entering a business-to-business (B2B) arrangement with Pakistan GasPort Limited (PGPL) to import around 100 to 150 MMCF per d of LNG.
APTMA says the PGPCL terminal has excess capacity that is currently unutilized. Under this arrangement, APTMA will import LNG directly through PGPL at mutually agreed rates and use the existing transmission and distribution infrastructure of SSGC and SNGPL, where pipeline capacity is already allocated for industrial captive units. PGPCL has also forwarded the proposal to SIFC and its secretariat has already invited comments from stakeholders till January 9, 2025.
The letter also mentions that transitioning to the national grid is also not a feasible alternative due to insufficient availability of power and significant infrastructure constraints across the country, as affirmed by the Secretary Power before the Senate Standing Committee on Power. For instance, in southern regions, particularly Karachi, there is insufficient physical space to install new grid stations to accommodate industrial consumers who currently rely on captive gas-fired generation.
Under HESCO’s jurisdiction, outdated infrastructure is incapable of supporting heavy industrial loads. Similar issues are also prevalent across Punjab and KPK. Additionally, grid supply in Pakistan is plagued by issues such as frequent outages, voltage fluctuations, and low reliability, that modern machinery and production processes cannot withstand and lead to costly operational disruptions across the industry. Under such circumstances it would become impossible for manufacturers to meet their production, sales and export targets.