The Government of Pakistan has reached an understanding with captive power plants to raise their gas tariffs at par with other commercial consumers.
Earlier this week, reports emerged suggesting the government was considering increasing gas tariffs for captive power plants by 50% to Rs. 4,500/mmbtu. The proposal calls for an additional 10% increase to gas prices after six months, with another 10% increase in July or November.
The decision had raised concern among textile mills, with the Pakistan Textile Council urging the government to reconsider the move, as it risked hampering the export-oriented sector’s ability to compete in the international market.
However, the government maintains the price increases are a necessary component of its $7 billion Extended Fund Facility with the International Monetary Fund (IMF). The global lender has demanded the government minimize subsidies to industry, removing the element of incentive to reduce the circular debt and rationalize prices. Ultimately, the government aims to disconnect the gas supply to the captive power plants from Feb. 1, 2025—a prerequisite of the bailout.
Authorities have also said the initiative would push more industries to utilize electricity from the national grid, which would raise consumption and potentially reduce the burden of capacity charges on consumer bills.
Over the past decade, the circular debt in the gas sector has increased from Rs. 200 billion to Rs. 2,500 billion, largely due to subsidies for both commercial and residential consumers. Under pressure from the IMF to curb the mounting debt, the government notified significant gas price hikes in January 2023 and again in November 2023. A minor adjustment was also implemented in February 2024, easing the debt burden on the treasury.
According to government data, captive power plants consume 242 mmcfd of indigenous gas and 154 mmcfd of imported LNG. The price parity between commercial consumers and captive power operators stood around 21% in 2018 and 2019. In 2020, the gap reduced to 18%, with no change in gas prices for the next three years. In 2023, gas prices were revised and the difference between commercial consumers and captive power increased to 27% or Rs. 1,650/mmbtu.
In November 2023, the gas price was increased again, with the gap widening to roughly 36%–Rs. 2,500/mmbtu for captive power plants and Rs. 3,900/mmbtu for commercial users. Subsequently, gas prices for captive power plants were raised to Rs. 3,000/mmbtu.