Key Points:
‘Grid levy’ on industrial captive power plants (CPPs) to increase incrementally until August 2026.
IMF dissatisfied with power sector reforms and privatisation timeline; agricultural tax under review.
ISLAMABAD: In a major policy shift, the government has notified a 23% increase in gas rates for industrial captive power plants (CPPs) and postponed a significant reduction in electricity tariffs to continue negotiations with the visiting International Monetary Fund (IMF) staff mission. The move comes as Pakistan seeks the disbursement of approximately $1.1 billion in the coming weeks.
A senior official involved in the discussions revealed that the IMF, led by Nathan Porter, insisted on implementing a ‘grid levy’ on natural gas and liquefied natural gas (LNG) supplied to industrial CPPs. In response, the government swiftly imposed a levy of Rs791 per million British thermal unit (mmBtu), effective from March 7, 2025, to comply with IMF conditions.
The notification, issued by Petroleum Secretary Momin Agha, states: “In exercise of the powers conferred by sub-section (1) of section 3 of the Off Grid (Captive Power Plants) Levy Ordinance, 2025, the federal government is pleased to notify that the rate for the purpose of sub-section (1) of the said section 3 shall be 791 rupees per mmBtu.” This adjustment raises the total gas price for industrial CPPs to Rs4,291 per mmBtu, following a Rs500 increase in gas rates.
Further Increases Planned
The levy will see additional hikes under the ordinance:
A 10% increase in July 2025,
A 15% increase in February 2026,
A 20% increase in August 2026.
These cumulative hikes are expected to drive the end price close to Rs6,000 per mmBtu, discouraging industries from using gas for power generation and pushing them toward the national grid.
Electricity Tariff Adjustments
The IMF rejected Pakistan’s proposal for an Rs8-10 per unit reduction in power rates through tax cuts, citing budgetary constraints. However, a marginal reduction of Rs2-2.5 per unit may be possible through:
Revenue from the grid levy,
Revisions or terminations of power purchase agreements with Independent Power Producers (IPPs),
Lower interest payments,
A stable exchange rate.
This reduction is expected to take effect by June or July.
IMF’s Focus on Agricultural Tax and Privatisation
The IMF mission also expressed concerns over the slow pace of power sector privatisation and the financial losses of power distribution companies (Discos). The government plans to privatise Islamabad, Faisalabad, and Gujranwala Discos in the first phase, followed by Multan, Lahore, and Hyderabad Discos.
Additionally, the IMF is pressing Pakistan to implement an agricultural income tax from July 1, 2025, and is engaging with provincial governments for clarity. The fund is also scrutinizing the retail and real estate sectors for potential revenue generation.
Next Steps in IMF Talks
Pakistan has formally requested a $1.2 billion Resilience & Sustainability Facility (RSF) from the IMF, aimed at climate adaptation and mitigation efforts. Deputy Prime Minister Ishaq Dar has reiterated the government’s commitment to securing this facility.
Policy-level talks also cover governance reforms, including the creation of a new portal for tax returns and asset declarations of government officials. A wrap-up meeting between Finance Minister Muhammad Aurangzeb and the IMF mission is scheduled for Friday. The IMF will continue to scrutinize budget proposals for the next fiscal year, with further virtual discussions expected in the coming weeks.
Story by Khaleeq Kiani
