By SKM
January 13, 2026
ISLAMABAD: A government decision to extend the off-the-grid levy to third-party gas suppliers has thrown a planned $5 billion investment in Pakistan’s oil and gas exploration sector into doubt, industry sources said, warning that the move has effectively killed the commercial viability of private gas distribution.
The levy has now been imposed on third-party firms supplying gas to industrial consumers, including the Universal Gas Distribution Company (UGDC), despite these companies procuring gas at auctioned prices from exploration and production (E&P) companies under competitive bidding arrangements.
Confirming the development, UGDC Chief Executive Officer Ghiyas Abdullah Paracha said the company would now function only as an agent to collect the levy on gas supplied to industrial units. “This makes third-party gas supply non-competitive,” he said, adding that details of the mechanism would be spelled out in a Presidential Ordinance yet to be issued.
The move follows earlier steps taken under an IMF-backed reform programme, under which the government imposed the off-the-grid levy on Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) for gas supplied to captive power plants. Gas prices for captive users were raised to Rs3,500 per MMBtu, with a 5 percent levy introduced in February 2025.
Under the agreed framework, the levy was increased to 10 percent from July 2025 and is set to rise further to 15 percent in February 2026, before reaching 20 percent from August 2026. The measures have pushed the effective gas price for captive power plants to $15.36 per MMBtu, including a levy of around Rs650 per MMBtu.
The impact on the export-oriented industrial sector has been severe. Gas consumption by exporters in Punjab has collapsed to 25 mmcfd from 180 mmcfd, while in Sindh it has fallen to 90 mmcfd from 210 mmcfd. Industry sources say more than 100 industrial units have shut down, citing unaffordable gas prices and unreliable grid electricity, accelerating the country’s export slowdown.
Under the amended 2012 E&P Policy, E&P companies were allowed to sell 35 percent of their gas through competitive bidding to private distributors. Third-party firms such as UGDC bought gas at auctioned prices—close to $8 per MMBtu—while paying windfall tax, royalty, transportation charges and over 100 percent Unaccounted-for Gas (UFG) losses, operating on thin margins to supply industry.
This arrangement helped E&P companies stabilise cash flows that had deteriorated due to non-payment by Sui gas utilities, contributing to a gas sector circular debt of Rs3.2 trillion. In return, E&P firms committed to investing $5 billion in upstream exploration and production.
Industry sources say the extension of the levy to third parties has now collapsed this framework. While Sui gas companies procure gas at an average cost of around $4 per MMBtu and pass on the levy with guaranteed returns, third-party suppliers procure gas at much higher auctioned prices and are now required to collect the levy without any profit margin.
According to a Petroleum Division letter dated January 13, 2026, UGDC has been formally added as a levy-collecting agent. A notification issued on January 9, 2026, under Section 9 of the Off-the-Grid (Captive Power Plants) Levy Act, 2025, authorised the company to impose and collect the levy from its captive power consumers.
Industry insiders warn the policy shift has effectively derailed the amended 2012 E&P Policy, threatening upstream investment and discouraging private participation in gas distribution at a time when domestic energy production is already under strain.
Concerns over policy inconsistency have also surfaced, with sources noting that some fertiliser sector players continue to receive gas for captive power plants without paying the off-the-grid levy, raising questions over selective enforcement.
Stakeholders caution that unless the policy is urgently reviewed, Pakistan risks losing critical upstream investment, deepening its energy crisis and further eroding export competitiveness. Ends
