Pakistan needs competitive exporters, not captive energy customers. Repeal the captive gas levy and make the grid win industrial demand on price and reliability. Raising the cost of factory-generated power is no substitute for fixing the electricity system. Energy reform should strengthen production, exports and foreign-exchange earnings—not make exporters pay for the sector’s failures.
The captive gas levy is an additional charge on natural gas and regasified liquefied natural gas consumed by industrial captive power plants under the Off the Grid (Captive Power Plants) Levy Act, 2025. The Act covers generation for self-consumption, with or without cogeneration, as well as sales of surplus electricity to a distribution company or bulk-power consumer. It is a fuel charge—not a fee for grid services—and its proceeds are intended to reduce consumer electricity tariffs. Its policy purpose is to encourage industry to switch to grid electricity.
The first test is what the levy does to an exporter’s ability to win an order—not what it adds to a utility’s revenue. An overseas buyer compares price, quality and delivery; Pakistan’s capacity payments are not the buyer’s responsibility. A charge that raises the cost of producing the same fabric compresses the margin available to retain an order, modernise machinery or expand production. If the exporter cannot absorb it, the order may go elsewhere. A gain in electricity-sector revenue can therefore coexist with a loss to the economy.
That pressure on export margins can be quantified. At an assumed electrical efficiency of 40 per cent, an illustrative levy of Rs500 per million British thermal units (MMBtu) adds approximately Rs4.27 per kilowatt-hour (kWh), before taxes and without allocating any fuel cost to useful heat. This is an illustration, not a current notified rate or a claim about every plant. It demonstrates how a fuel levy becomes a material cost at the factory gate.
This added cost is the issue—not whether every competing country always supplies cheaper gas. International prices vary by location, contract and consumer category. What matters is whether Pakistan adds an avoidable domestic burden to costs that exporters must already manage. Competitiveness cannot be restored by repeatedly asking industry to compensate for failures elsewhere.
If exporters are asked to bear this burden, the levy must also be judged against its own fiscal objectives. The federal Budget in Brief for 2026–27 puts the FY2025–26 revised receipts estimate at Rs14 billion against an original Rs105 billion—approximately 87 per cent lower. These are estimates, not final audited collections. The gap warrants explanation, but it does not, on its own, prove that the policy failed.
A transition levy may collect less precisely because customers change behaviour. Government must therefore establish what happened to the demand it displaced. Did factories buy more grid electricity, invest in alternatives, reduce output or close production lines? Lower captive gas consumption is not a sufficient measure of success. Each response has a different consequence for utility finances and for Pakistan’s productive capacity.
The strongest argument for the levy deserves a fair hearing: moving demand to existing grid capacity can improve its utilisation, spread fixed costs over more sales and potentially release gas for more efficient generation. The State Bank’s half-year report for FY2025–26 identifies captive transition as a contributor to stronger grid demand and tariff relief. That supports part of the policy’s rationale. It does not establish that the levy is the least-cost way to achieve those benefits, or that they exceed the costs imposed elsewhere.
The claim about more efficient generation must first account for cogeneration. Combined heat and power (CHP) produces electricity and useful industrial heat from the same fuel. The US Department of Energy’s Overview of CHP Technologies gives a typical overall efficiency range of 65 to 85 per cent for properly designed systems. That is not a certification of Pakistani installations; it explains why electrical efficiency alone is the wrong basis for judging a plant whose recovered heat is actually used.
A mill switching to grid electricity may still need fuel for steam. A valid comparison must therefore include replacement heat, measured plant performance, network losses, reliability and any additional investment required. Efficient CHP should not be presumed superior in every case, but neither should it be penalised on an incomplete comparison. Government must demonstrate the national benefit of changing how both power and heat are supplied, rather than assume that all captive generation wastes gas.
Even where a switch could improve efficiency, making captive gas unattractive does not guarantee durable grid demand. Businesses have more than two choices. They can invest in solar, batteries and other fuels, with wind also available at suitable sites. They may retain a grid connection while substantially reducing purchases. Connection is not consumption, and consumption is not necessarily profitable demand. The relevant measures are actual purchases, payment and the cost of serving the customer.
Price uncertainty makes that distinction more important. Exporters quote prices and commit to deliveries months ahead, while electricity bills remain exposed to tariff revisions, fuel adjustments and changing surcharges. A lower tariff today offers limited reassurance if tomorrow’s delivered cost cannot be budgeted. Investment in alternative supply buys greater control over costs as well as potential savings. Making gas more expensive cannot make the grid more predictable.
Gul Ahmed Textile Mills illustrates the commercial response. Its October 2026 disclosure reports approval for 7.5 MW of wind capacity, up to 6 MW of solar and a 20 MWh battery storage system. Approval is not commissioning, and these investments do not establish that the company has disconnected from the grid or that the captive levy alone prompted them. They do show that a major industrial customer is committing to alternatives rather than relying exclusively on utility supply.
The wider storage market provides context, not proof of industrial migration. The Pakistan Solar Association’s customs-based compilation puts lithium-ion battery imports at US$256.94 million between January 2025 and May 2026, mostly for residential use. Those purchases cannot be attributed to the levy; their economic value must be assessed against the savings and reliability they deliver.
For industrial storage, the same test applies: weigh the initial foreign-exchange cost against future fuel savings, improved reliability and protected production. The concern is avoidable duplication: policy may encourage a factory to finance another energy system while the country continues paying for underused public infrastructure. Whether that investment improves or worsens the national balance depends on the full costs and benefits—not one utility’s additional sales.
Gas-sector obligations belong in the same calculation. Losing industrial throughput does not eliminate pipeline costs or settle existing liquefied natural gas (LNG) commitments. It may leave fixed costs spread over fewer customers, unless demand elsewhere absorbs the released supplies. The outcome depends on seasonal balances, delivery constraints and contractual flexibility. Moving a customer from one sector’s accounts to another’s is not a substitute for integrated gas and power planning.
The case for repeal is not that every captive plant is efficient, but that a fuel penalty is the wrong instrument for recovering electricity-system costs. Efficiency exemptions would leave its demand-steering purpose intact without establishing the full benefit of switching to the grid. Charge transparently for gas supply, transport and grid capacity used or reserved. Address any identifiable public cost of inefficient fuel use separately; foregone electricity sales are not proof of harm. Repeal the levy, not the obligation to pay for services.
A workable gas market would put that cost-based principle into practice by making fuel and network charges transparent rather than using a levy to steer consumption. Eligible producers and licensed suppliers should be able to contract with creditworthy industrial customers under enforceable third-party access rules. Separate the commodity price from transport charges, publish usable network capacity and loss allowances, and require secure payment and transparent settlement. Access on paper is not enough: the test is repeated, metered deliveries on non-discriminatory terms.
Market opening must also confront legacy obligations honestly. Reconcile historical debt and existing LNG commitments, assign responsibility transparently and fund household support explicitly through the budget. Industrial customers should pay efficient supply and network costs; repeal is not a claim to free infrastructure or subsidised gas. But theft, unrecovered bills and social-policy commitments should not become an unlimited charge on industrial competitiveness.
The electricity grid, in turn, must win industrial demand through reliable service, commercially defensible tariffs and predictable connection agreements. Customers that reserve backup capacity should pay its justified cost, even when their energy purchases fall. Competitive procurement, lower losses and better collection can improve the proposition offered to industry. A levy on another fuel cannot deliver those reforms.
The transition must be financially credible. Government should pursue repeal through the necessary legislation, identify a transparent replacement for any tariff relief financed by the levy and resolve relevant programme commitments. An independent review should guide that implementation—not postpone the decision to repeal—by establishing the levy’s net effects on both utilities, industrial output and foreign exchange. Metered customer data must distinguish genuine grid migration from fuel substitution and lost production, without counting the same benefit or cost twice. Those findings should inform replacement funding and the design of service-based charges.
Repeal the captive gas levy. Open gas markets. Make the grid compete on price and reliability—not coercion. Exporters must not be held captive to energy-sector failures.
Copyright Business Recorder, 2026