ISLAMABAD: The government is set to collect over Rs55 billion in prior year adjustments (PYA) during FY25, following a Rs500/MMBtu increase in gas tariffs for captive power plants (CPPs), aligning with IMF-mandated reforms.
The tariff hike from Rs3,000/MMBtu to Rs3,500/MMBtu has pushed the weighted average gas tariff to Rs1,722/MMBtu, with an expected annual average of Rs1,689/MMBtu, according to Hamdan Ahmed, an analyst at Optimus Capital Management. The Oil and Gas Regulatory Authority (OGRA) has also based its revenue estimates on an assumed oil price of $81.8/bbl, higher than the FYTD25 average of $76.5/bbl, signaling potential revenue gains.
Potential Benefits for the Power Sector
The shift could benefit the power sector, as a transition of CPPs to the national grid may result in a Rs0.2-0.5/KWh tariff reduction across all consumer segments. Additionally, capacity charges could drop by Rs0.6/KWh, particularly with increased reliance on low-cost nuclear and Thar coal plants.
However, the gas sector faces limited direct impact. A full transition of CPPs to the grid could lead to a Rs35 billion shortfall, requiring a 5% gas tariff hike to offset the revenue loss. Challenges include excess RLNG supply, potential domestic gas disruptions, and risks to exploration and production (E&P) operations. Despite this, the weighted average cost of gas remains lower than imported RLNG, favoring its use in productive industries.
Industry and Policy Implications
To enforce the grid transition, the government plans to introduce levies on CPPs, which could burden energy-intensive industries like textiles, chemicals, and cement. However, potential electricity tariff reductions may mitigate financial strain.
Meanwhile, exploration and production (E&P) companies and Pakistan State Oil (PSO) stand to gain from a gradual recovery in circular debt, currently at Rs2.8 trillion. OGRA’s gas tariff hike, effective February 1, 2025, primarily impacts textile sector CPPs, while other consumer categories remain unaffected. The Economic Coordination Committee (ECC) has also reaffirmed plans to align CPP tariffs with RLNG prices and instructed the Petroleum Ministry to impose a grid transition levy.
Uncertain Shift to the National Grid
Despite expectations of a mass shift to the grid, some CPP operators may continue self-generation due to power supply uncertainties. The transition is expected to take six months, and any grid instability could increase operational costs.
According to Shagufta Irshad of JS Global, the supply of gas at higher rates is still a relief for industries, particularly in textiles, compared to a complete gas disconnection. Many industries have already secured alternative energy sources, including multi-fuel plants, increased solar capacity, private RLNG procurement, and utility-based power agreements. However, the risk of a total cut-off from gas supply remains, raising concerns over uninterrupted grid electricity throughout the year.
Story by Usman Hanif
