EDITORIAL: Pakistan’s energy sector complications never seem to end. The latest issue revolves around increasing the gas supply pricing for captive power plants, where the interests of the power and petroleum divisions are at odds.
The former, along with the finance ministry, is leveraging the IMF’s conditions to push captive power consumers toward the grid, while the petroleum sector — especially gas marketing companies — oppose the move.
This story dates back to 2020 when the then government sought to transition captive power consumers to the grid by adjusting pricing through the implementation of WACOG (Weighted Average Cost of Gas). Industrial players relying on captive power resisted, arguing that their combined cycle plants were more efficient than the grid.
Another concern was that export-oriented industries depended on captive generation, and increased gas prices would render them uncompetitive. In response, the government proposed an audit to verify which industries were using combined cycle plants and utilising gas for export purposes, but the industry resisted the audit.
Then, as the government changed, the issue lost momentum. However, in 2024, this issue cropped again during the government’s negotiations with the IMF (International Monetary Fund). To address power sector challenges the government proposed ending gas supply to captive power plants by January 1, 2025 as a condition of the IMF agreement, forcing these consumers to switch to the grid.
However, it appears that the government failed to fully consider the impact on Sui companies or the readiness of industries for such a transition.
The issue intensified in the last few months of 2024, with both industrial players and Sui companies pushing back against the IMF condition. Their concerns are valid.
Some industrial players, including major exporters in the South, lack access to the grid entirely and would need to invest billions of rupees to build the necessary infrastructure — a process that could take months, if not years. Without a reliable power source during this transition, their survival would be at risk.
On the other hand, Sui companies rely heavily on captive consumers, who are high-paying customers and help cross-subsidise low-tariff domestic consumers. If these consumers shift to the grid, recovering the cost of expensive imported RLNG will become a significant challenge.
The country is obligated to import 10 cargoes of RLNG under long-term contracts, mainly from Qatar. As RLNG demand from the power sector declines, local gas production must be reduced to accommodate imported gas. If captive consumers move away, gas companies’ financial burden will only worsen.
Recognising these challenges, the government approached the IMF to propose an alternative plan. The IMF agreed to an alternative measure — increasing gas prices — since the initial plan to eliminate captive gas supply originated from the government. Consequently, the price was raised from Rs3000 per MMBtu to Rs3500 per MMBtu, with a planned 20 percent increase in stages.
Informal discussions with power distributors and captive power consumers in the South suggest that very few may transition to the grid. Those with existing grid connections may make decisions based on marginal costs, while others are unlikely to invest in new infrastructure and will instead explore alternative solutions.
Captive users in the North cite grid unreliability concerns and are considering alternative power sources such as maximising solar usage, biomass, and other options to minimise dependence on the grid.
As a result, the objective of shifting captive power consumers to the grid may not materialise on a large scale. Meanwhile, the financial challenges of Sui companies may worsen, especially as the government is now allowing third-party supply of incremental domestic gas production and is considering third-party access to imported RLNG.
No doubt, it’s a convoluted situation, driven by confusion and half-baked policies, where one arm of the energy ministry works against the other. Energy should be seen as a molecule and the policy must be diverted to the most efficient use through pricing. Till that happens, the confounded situation will continue to persist.
Copyright Business Recorder, 2025
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