Off-grid levy costs gas sector Rs110bn

ISLAMABAD: A key energy sector reform, implemented under the guidance of the International Monetary Fund (IMF), has caused a staggering Rs110 billion loss in Pakistan’s gas sector, while delivering only Rs35 billion in revenue, it is learnt.

During a recent review mission to Islamabad, IMF officials were reportedly “disturbed” by the scale of the damage. Far from boosting grid electricity uptake or stabilising energy sector revenues, the off-the-grid levy on captive power plants (CPPs) has unleashed a cascade of unintended consequences — fuelling inflation, undermining exports, and puncturing the government’s cross-subsidy framework.

Senior officials in the Petroleum Division, who were part of the talks with the Fund, told this scribe that the reform — once hailed as a fiscal game-changer — has turned into a “counterproductive disaster”.

Originally designed to push industrial consumers off self-generated gas-based power and onto the underutilised national grid, the levy instead triggered a sharp decline in industrial gas demand, shattered pricing assumptions, and pushed many businesses into survival mode.

“Instead of switching to grid electricity, industries have simply cut consumption, turned to cheaper fuels like biomass and wood, or even downsized operations,” confirmed a senior official.

The IMF was also told that the levy’s unintended fallout has imperilled Pakistan’s cross-subsidy model — a long-standing mechanism under which the industrial sector’s higher gas tariffs subsidize residential consumers.

With industrial gas consumption in freefall, the Rs145 billion subsidy cushion once provided by industry has nearly evaporated.

“The entire subsidy model was built on the assumption of steady industrial demand,” explained an official. “Now, it’s collapsing under the weight of its own assumptions and pricing tactics.” The levy, which increased to 10pc in July, is scheduled to climb to 15pc in January 2026, and 20pc by August 2026. But with gas consumption continuing to nosedive, government insiders now admit that future revenue targets are unlikely to be met.