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Monday February 10, 2025

Govt imposes 5% levy on gas used by off-grid power plants

Under ordinance, govt would impose 15% levy by February, 2026, and 20% by August, 2026

By Khalid Mustafa
February 02, 2025
A representational image of a transmission tower, also known as an electricity pylon. — AFP/File
A representational image of a transmission tower, also known as an electricity pylon. — AFP/File

ISLAMABAD: In a major development, the government has imposed five percent off-the-grid levy on the newly notified rate of Rs3,500 per MMBtu of RLNG or natural gas for captive power plants (CPPs) set up by the export and non-export industry across the country.

The government took the step under the ordinance promulgated on January 30, 2025.

Under off-the-grid levy ordinance, of which a copy is available with this scribe, the government has imposed five percent levy on natural gas and RLNG that is to be used by captive power plants and then it would further impose a 10 percent levy from July 2025.

Under the ordinance, the government would impose 15 percent levy by February, 2026, and 20 percent by August, 2026. The amount to be collected through the levy would be used for the reduction of power tariff for all consumer categories of the power sector.

“Under the structural benchmark of $7 billion loan from IMF, the government has to switch the industry on to grid electricity, and during the transition period, the industry that has captive power plants would have to pay off-the-grid levy that would be utilised by the Centre for reduction of power generation tariff for all consumer categories of the power sector,” a relevant official told this scribe.

As per the ordinance, every captive power plant would pay the federal government a levy on the consumption of natural gas or RLNG, over and above the sale price notified under section 8 and section 43B of the Oil and Gas Regulatory Authority Ordinance 2002 (XVII of 2002), at such rate as notified by the federal government in the official Gazette, from time to time.

Sui Northern Gas Pipelines Limited, and Sui Southern Gas Company Limited would be responsible for billing of levy to captive power plants, its collection, and onward payment to the government.

Before notifying the levy, the divisions concerned would calculate the rate of levy by taking into account the difference of power tariff of industrial B3 category, notified by Nepra, and the self-power generation cost of the captive power plant at the gas tariff notified by Ogra.

An annual report in respect of the utilisation of the levy would be laid before the parliament after three months from the end of each fiscal year.

If a captive power plant failed to pay the levy, the Sui companies would terminate the gas supplies to it. The amount of levy would be recoverable under the respective law. The levy paid by a captive power plant shall be an expenditure for which allowance is to be made under the Income Tax Ordinance 2001 (XLIX of 2001) in computing its profits or gains.