IMF Proposes Alignment of Gas Tariffs for Captive Power Plants with RLNG Prices
IMF Urges Gas Tariff Alignment and Levy on CPPs to Address Circular Debt
ISLAMABAD: The International Monetary Fund (IMF) has recommended that Pakistan align gas tariffs for captive power plants (CPPs) with the prices of re-gasified liquefied natural gas (RLNG), effective February 1, 2025. This proposal comes as part of ongoing efforts to address inefficiencies in the country’s energy sector and manage circular debt.
Previously, the government had agreed with the IMF to disconnect gas supply to CPPs, following concerns over the public gas utilities supplying inefficient, gas-based power plants with subsidized fuel. These plants had been receiving electricity at cheaper prices from the national grid, despite not being entitled to discounted gas.
The IMF has now called for the government to align gas tariffs for CPPs with RLNG prices to ensure full cost recovery. Additionally, the IMF proposed imposing a levy on CPPs, with the collected revenue directed toward reducing the country’s mounting circular debt, which has strained Pakistan’s energy sector.
Captive power plants are primarily owned by the textile industry, which has shown reluctance to pay charges such as the cotton cess and gas infrastructure development cess, amounting to billions of rupees. As part of the ongoing discussions, the Cabinet Committee on Energy (CCOE) was briefed on the IMF’s proposal, which would align the baseline gas tariff for CPPs with the full cost of RLNG starting next month.
The Petroleum Division has presented the proposal to the CCOE, explaining that the matter of gas supply cuts and tariff adjustments is being negotiated with the IMF. However, CPP owners have expressed concerns about the proposed higher gas prices and levies.
The CCOE acknowledged the legal and practical complexities surrounding the imposition of the levy. While disconnecting gas supplies from CPPs has been considered as an option, the committee believes it may not be a viable solution, suggesting that further discussions are needed to find an alternative.
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If implemented, the new gas tariff alignment will affect the textile sector’s captive power plants, which could face higher energy costs unless they connect to the national grid. However, the government is also considering using any revenue from the proposed levies to reduce circular debt, although this aspect remains under discussion.
