IMF Allows Rs1 Per Unit Cut in Electricity Prices, Industries Protest Gas Levy Hike
ISLAMABAD: The International Monetary Fund (IMF) has approved a marginal reduction of Rs1 per unit in electricity prices, suggesting that Pakistan utilize revenues generated from the Rs791 per unit gas levy imposed on industries using in-house power generation. This remains the only measure the government has managed to secure so far.
While this adjustment will slightly lower electricity costs by 1.5%, industries relying on gas for captive power production will face a 23% increase in gas prices, making the cost-cutting benefit insignificant.
IMF’s Proposal and Legal Challenges
IMF Resident Representative Mahir Binici, in a statement following Pakistan’s staff-level agreement with the IMF, clarified that revenues from captive power plant firms could facilitate the Rs1 per unit reduction, benefiting all electricity consumers. However, the Islamabad High Court (IHC) has already halted the off-grid gas levy for at least five weeks, adding legal uncertainty to the proposal.
Pakistan recently finalized discussions with the IMF for a $1 billion loan tranche, but the IMF board meeting date remains undetermined.
Government’s Controversial Gas Levy and Industrial Backlash
On March 7, the government imposed a 23% increase in gas tariffs for industrial captive power plants, introducing a Rs791 per million British thermal unit (mmBtu) grid levy. The purpose of this measure was to discourage industries from self-generating power and push them toward the national electricity grid.
However, the Rs1 per unit reduction in electricity prices comes at the expense of a significant financial burden on industries. Major textile exporters and chemical firms have filed legal petitions, arguing that the levy violates constitutional tax laws and unfairly increases costs.
A recent Islamabad High Court ruling (March 26) has suspended the March 7 notification, with further hearings scheduled for April 30, 2025. The petitioners contend that they are already paying sales tax on natural gas and that the new levy represents double taxation. They also raised concerns over why the government introduced the tax through a Presidential Ordinance instead of through parliamentary legislation.
IMF Rejects Government’s Request for Gas Levy Reduction
During negotiations, Pakistan’s Petroleum Division requested the IMF to lower the Rs791 per mmBtu grid levy by Rs250 to Rs300, suggesting it should be linked to average electricity prices rather than peak-hour rates. However, the IMF dismissed the proposal, insisting that higher rates are essential to shift industries away from gas-powered generation and onto the national grid.
Following this steep levy, captive power plant gas prices have now surged to Rs4,291 per mmBtu, surpassing imported LNG prices. This pricing strategy is designed to make national grid electricity more appealing, but businesses remain hesitant due to high grid electricity costs caused by sector inefficiencies and policy failures.
Future Increases in Gas Levy and Rising Costs
According to the Off the Grid Captive Power Plants Levy Ordinance 2025, the grid levy will increase incrementally, with a 10% hike in July 2025, followed by 15% in February 2026, and another 20% in August 2026. This will drive gas prices up to nearly Rs6,000 per mmBtu, making grid electricity the only viable option. However, with the court now reviewing the matter, the government’s ability to enforce the levy remains uncertain.
Government’s Struggle to Secure Broader Tariff Reductions
Prime Minister Shehbaz Sharif has expressed his goal of reducing power tariffs by Rs6 to Rs8 per unit, but the Power Division has yet to present an IMF-approved plan to achieve this. Pakistan has attempted to persuade the IMF to consider alternative methods to lower electricity prices, including:
Utilizing additional revenue from petroleum levies
Adjusting fuel price calculations and quarterly tariff changes
Cutting taxes on electricity bills
However, the IMF remains firm in its stance, refusing to allow reductions in taxes or levies on electricity bills. It has also not confirmed whether Pakistan can use Rs180 billion in additional revenues from the recent Rs10 per liter petroleum levy hike to reduce power costs.
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FAQs
Why has the IMF approved only a Rs1 per unit reduction in electricity prices?
The IMF suggested using revenues from the gas levy to facilitate the minor reduction, but industries face significantly higher gas costs as a result.
How does the gas levy affect industries using in-house power generation?
Industries relying on captive power plants now face a 23% increase in gas prices, making self-generated electricity significantly more expensive.
Why has the Islamabad High Court intervened in this matter?
The court has suspended the gas levy after industries challenged its legality, arguing that it constitutes double taxation and was implemented without parliamentary approval.
What is the government’s long-term plan for reducing electricity costs?
The government aims to push industries to shift from gas-powered electricity to the national grid, while also seeking IMF approval for broader tariff reductions.
Will gas prices continue to rise under the new policy?
Yes, under the new ordinance, the gas levy will increase further in 2025 and 2026, eventually making gas-generated power nearly affordably.
