The IMF has agreed to modify the price formula used to determine the levy on captive power plants, which was flawed in the first place. The formula was based on peak rates instead of the weighted average of peak and off-peak rates, which would have made it more compatible with grid tariff usage. If calculated correctly, the revision should reduce the levy by around 60%, bringing it to roughly Rs600–700, with the effective price at around Rs4,100–4,200.
This is a welcome move, and credit must go to the Petroleum Ministry for pushing for it. However, many industrial players believe it is too little. For example, cement and other industrial users may continue to remain on the grid, as grid tariffs have fallen to around Rs32 per unit, while captive gas-based generation would still cost around Rs42 per unit even after the reduction. There may be another saving of around Rs4 per unit for users operating combined-cycle plants, but even then, the incentive may not be enough.
The move will mainly benefit consumers that do not have grid connections, face grid reliability issues, or have system compatibility constraints. As gas became prohibitively expensive, some of these users shifted to furnace oil-based captive generation, where available. That option was still costly but remained viable.
The government, in order to secure RSF from the IMF, then imposed an excessive levy on furnace oil, creating its own set of problems, especially for refineries that need to offload the furnace oil they must produce. In its pursuit of loans (and higher marks), the Finance Ministry largely ignored the compulsions of the Petroleum Ministry. Some industries moved away from furnace oil, while others either continued using it or remained on gas.
Now, due to the Iran-US war, furnace oil prices have skyrocketed and have become unaffordable for almost everyone, with the grid-equivalent cost reaching Rs60–65 per unit. In this context, reducing the gas levy is beneficial, as it lowers the effective gas-based cost from around Rs50 per unit to roughly Rs42 per unit. This makes textiles, especially export-oriented units, more competitive at a time when exchange rate appreciation relative to competitors is already making them less viable.
APTMA has issued a thank-you note, while representatives of the Pakistan Textile Council are also appreciative of the government’s move and are acknowledging the efforts being made by the Petroleum Ministry. For the Petroleum Division, the incentive is to ensure greater use of its gas and furnace oil.
The furnace oil problem will remain, while the absence of RLNG has helped resolve the issue of excessive gas. The real challenge now is to find an efficient way of supplying available domestic gas to users. There is no supply to CNG, fertilizer supply has been cut by half, and some molecules are being diverted to the power sector. The remaining supply, mainly in the SSGC network, is expected to be used by captive consumers.
The stress on the petroleum and industrial sectors will continue because of the extraordinary situation. Nonetheless, correcting the levy formula provides some relief.
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