The International Monetary Fund has approved a change to the formula used to calculate Pakistan’s captive power gas levy, a move that could reduce gas costs for industrial consumers by up to 60 percent.
The decision, communicated to the Pakistani government this week, allows Islamabad to shift the reference price used to determine the levy from the peak B3 industrial electricity tariff to a weighted average of peak and off-peak B3 rates. That single change is enough to bring the levy down significantly. Under the current formula, the captive levy stands at Rs1,303 per mmBtu. Under the revised weighted-average method, it would fall to around Rs522 per mmBtu. The full 60 percent reduction is not guaranteed every month, but trends over the past 10 months suggest industrial users could see reductions ranging between 30 and 60 percent.
The request to revise the formula was made by Petroleum Minister Ali Pervaiz Malik during the third IMF review talks last month. At the time, the Fund said it would examine the feasibility of linking the levy to average tariffs but stopped short of committing. The decision to approve the change came later.
IMF Conditions the Gas Levy Cut on Grid Electricity Demand
The approval comes with firm conditions. The IMF has tied the formula change to continued industrial electricity demand from the national grid. If grid consumption falls, the government will be required to raise the levy to 20 percent one month ahead of the originally scheduled August deadline, meaning as early as July. If demand drops further, the rate could even be pushed above 20 percent.
The IMF also rejected two additional requests from Pakistan’s government: to freeze the existing 15 percent additional gas levy on captive power plants and to exempt plants with higher efficiency ratings from the levy. The Fund maintained that the levy should function as a punitive tool to push industries away from gas-based in-house power generation and toward the national grid.
Pakistan had argued that some captive plants operate at around 55 percent efficiency, compared to the 30 percent typically cited for less efficient units, and should therefore qualify for exemptions. The IMF rejected that position, noting that industries had resisted third-party efficiency audits for over two decades, often obtaining court orders to avoid compliance.
The IMF has also instructed the government to ensure that industrial users who have already transitioned from captive generation to grid electricity do not revert to gas once the revised formula takes effect.
Pakistan’s Energy Sector Under Pressure
The captive power levy has been a source of significant strain across Pakistan’s energy sector. The levy is calculated based on the difference between the industrial grid tariff notified by NEPRA and the cost of self-generation using gas priced by OGRA. It was designed to make gas-based in-house power generation more expensive than grid electricity, forcing industries to shift.
But the policy has had broader consequences. The Sui gas companies reported losses of Rs104 billion during the first half of the current fiscal year, partly because imported gas was redirected to lower-paying consumers as industrial demand for captive generation dropped. Levy collections also came in below estimates.
Industries, particularly export-oriented sectors, have increasingly turned to rooftop solar as an alternative to both the expensive national grid and the levied gas supply. Government officials have been exploring ways to discourage solar adoption, including a proposed licensing requirement for household solar panel installations. Those measures have not slowed the shift.
The captive power levy was introduced under the Off the Grid Levy Ordinance, signed by President Asif Ali Zardari, which set a phased increase schedule: 5 percent initially, rising to 15 percent in February 2026 and reaching 20 percent by August 2026. Revenue collected from the levy is intended to reduce electricity tariffs for all consumer categories.
The IMF’s approval of the formula change is a partial concession to Pakistan’s industrial sector, but the Fund has made clear that its broader objective, shifting industry off gas and onto the grid, remains unchanged.
