Captive power gas: Govt extends monthly levy to third-party suppliers

ISLAMABAD: The federal government has approved the extension of the monthly levy rate, as determined and notified for captive power consumers of Sui Southern Gas Company Limited (SSGCL) and Sui Northern Gas Pipelines Limited (SNGPL), to consumers of third-party companies engaged in the sale of gas to captive power plants.

According to sources, the Petroleum Division has also been authorised to amend the Schedule of the relevant Act, subject to vetting by the Ministry of Law and Justice.

Sharing details, sources said that with parliamentary approval and the assent of the President, the Off the Grid (Captive Power Plants) Levy Act, 2025 (Act XIV of 2025) was enacted and notified in the official Gazette of Pakistan on June 10, 2025. The Act provides for the validation, imposition, and collection of an off-the-grid levy on the consumption of natural gas by captive power plants.

Section 2(e) of the Act defines the levy as an off-the-grid charge applicable to natural gas or RLNG-based captive power plants under Section 3. Sections 3 and 4 of the Act deal with the imposition, collection, and calculation of the levy. Under Section 3, every captive power plant is required to pay a levy to the federal government on the consumption of natural gas or RLNG, over and above the sale price notified under Sections 8 and 43B of the Oil and Gas Regulatory Authority (OGRA) Ordinance, 2002. The levy is to be charged at rates notified by the federal government from time to time. The agent company is responsible for billing, collecting, and remitting the levy to the federal government in the prescribed manner.

Section 4 provides that, before notifying the levy, the relevant Divisions under the Rules of Business, 1973, shall calculate the levy rate by taking into account the difference between the industrial B3 power tariff notified by Nepra and the self-generation cost of captive power plants at Ogra-notified gas tariffs. The levy rate is to be increased by five percent immediately, rising to ten percent by July 2025, fifteen percent by February 2026, and twenty percent by August 2026.

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Both SSGCL and SNGPL are defined entities under the Act. Section 9, read with Serial No. 3 of the Schedule, allows amendments to include “any other company engaged in the sale of gas to captive power plants,” as may be notified in the official Gazette.

According to the Power Division, since Sections 3 and 4 provide for the imposition of levy over and above Ogra-notified sale prices—currently applicable to SSGCL and SNGPL, the opinion of the Ministry of Law and Justice was sought regarding the imposition of levy on companies supplying gas to captive power plants where gas purchase and sale prices are not determined by Ogra.

In its response, the Law and Justice Division stated that Section 3 empowers the federal government to amend the Schedule to include companies supplying gas to captive power plants. Once notified, such companies would be obligated to bill and collect the levy as “agents” under Section 3 (2). The Division noted that while gas sales from producers to third-party suppliers are treated as deregulated, the sale of gas from third-party suppliers to captive power plants is not deregulated and must be regulated by OGRA under Sections 8(6), 43A, and 43B of the Ogra Ordinance for levy collection purposes.

The Petroleum Division; however, pointed out that Ogra does not currently determine or notify gas purchase and consumer sale prices for companies engaged in gas supply to captive power plants outside the SSGCL and SNGPL networks. As levy calculations under Sections 3 and 4 rely on Ogra-notified gas prices, the absence of notified prices for third-party suppliers could make the determination of a separate levy rate difficult and potentially expose the government to litigation.

In view of these concerns, the Petroleum Division submitted two proposals to the federal cabinet: (i) that the monthly levy rate determined and notified for captive power consumers of SSGCL and SNGPL be extended to consumers of third-party gas suppliers; and (ii) that the Petroleum Division be authorised to amend the Schedule of the Act, subject to vetting by the Ministry of Law and Justice.

After detailed deliberations and in light of the comments of the Law and Justice Division, the federal cabinet approved the proposals of the Petroleum Division.

Copyright Business Recorder, 2026