By SKM
February 05, 2025
ISLAMABAD: The draft of the off-the-grid levy ordinance, 2025 promulgated on January 30, which put the future of the country’s industry in the doldrums has been prepared by the IMF, not the government, a senior official privy to the development said.
“The Fund had rejected the draft of the ordinance earlier prepared by the government’s top mandarins saying it has not the timelines for increasing the levy on the industry and plan on how to impose the levy.”
“The IMF has made the structure a part of the ordinance on how to calculate the levy to be imposed on the RLNG or system gas for CPPs,” he said. “We failed to make the Fund understand that the levy, after the gas rate has been increased at par with RLNG cost, up to 20 percent will be detrimental to the industry.”
The petroleum division officials also opposed the IMF dictated ordinance which says that the amount to be collected through levy to be used to reduce the tariff of electricity consumers of all categories arguing that the levy would be collected on gas and it should be used for gas consumers relief not for the electricity consumers.
However, under the IMF diktat, the levy would be imposed after working out the difference between the power tariff of B3 Industry which is at 36.92 per unit and the electricity generation cost by the CPPs. The levy would be imposed on the difference between the two rates. The total captive power plants are 1050 in numbers having various efficiencies. If we suppose that the difference between the two tariffs stands at Rs1.50 per unit, then we have to impose on the difference a 5% levy owing to which the gas rates for CPPs would increase by 400-1200 per MMBTU more after their new rates have settled at Rs3500 per unit.
Under the ordinance, 5 percent will be imposed soon after the petroleum division issues the notification. From July 2025, the levy will be increased to 10 percent, then from February 2026, it would further be increased by 15% and in August 2026, the levy will go up to 20 percent.
The top functionaries of petroleum, finance and power divisions would sit in a couple of days and thrash out the difference of power tariff of B3 industry and the cost of self-generation of electricity by CPPs so that levy could be imposed. After working out the difference between the two rates, the SRO would be issued with regard to imposition of 5 percent levy.
Meanwhile, the industry has refused to pay the levy saying it is generating electricity on gas at a price of Rs3500 per MMBTU more than the rate of B3 industry power tariff rate. The industry has communicated to the government that it would challenge the ordinance on off-the-grid levy in the court of law.
However, the relevant officials feared that IMF mission due in the third week of February may ask the government to make the ordinance as part of parliament act to avoid any kind of litigation by the industry.
In a letter to Petroleum Minister Mr Muadik Malik written on February 3, 2025, APTMA mentioned that with the current captive gas tariff of Rs. 3,500 per MMBtu, the cost of in-house power generation has already surpassed the current B3 grid tariff of 13 cents/kWh at various efficiencies, including the 36% average efficiency for captive generation agreed upon as a benchmark during our working session with DG Gas and CPPA-G officials. In fact, the current gas tariff yields a cost of generation of around 15.4 cents per kWh at the benchmark efficiency, which is far above the B3 grid tariff and therefore requires no additional levy.
The industry built the efficacy of its arguments saying at 30 percent efficiency, their plants generate electricity at rate of Rs49.72 per unit (17.89 cents), at 35 percent efficiency, they generate power at Rs42.91 per unit (15.44 cents) and, on 40 percent, CPPs generate electricity at rate of Rs38.97 (14.02 cents) per unit. This shows that CPPs are generating electricity more than the grid electricity fixed for B3 industry.
“If the intent of the levy is to equalize captive power costs with B3 grid tariffs, there is no clarity on adjustments in case the cost of captive generation is significantly greater than the B3 grid tariffs.” APTMA poses a question: “Would the levy mechanism allow for a negative adjustment if cost of captive generation at base tariffs exceeds grid power tariffs by more than the levy, as the case is currently?” The absence of such a mechanism raises further concerns about the rationale behind this measure.
The officials said that APTMA’s data about the power rates by CPPs needs an audit that the claims of the industry are true or not. They said that the industry claims that O&M of their captive power plant contributes Rs5 per unit in the tariff, but NEPRA says that O&M cost contributes Rs1.5 per unit in the tariff.
APTMA, however, also asked the minister in its letter that the current structure of the grid transition levy is entirely unacceptable, as its purpose of migrating energy demand from inefficient captive power plants to the grid is already achieved by current gas/RLNG prices. “Imposition of the additional levy is as detrimental as an outright discontinuation of gas supply to captive units, pushing the industry into an unprecedented crisis. The negative implications for exports, employment, and economic stability cannot be overstated. Urgent intervention is required to rectify this issue before irreversible damage is done. We remain at your disposal for further discussion on this critical matter,” letter says. Ends
