The International Monetary Fund (IMF) has turned down a formal request from the Government of Pakistan to freeze the 15 percent additional gas levy currently imposed on industrial captive power plants. During recent review talks, the government sought to exempt energy-efficient industrial units from this charge, arguing that the levy was contributing to significant financial losses for Sui gas companies due to a sharp decline in demand for imported gas. However, the IMF stood firm, rejecting both the exemption for efficient plants and the proposal to halt the scheduled increase of the levy to 20 percent starting in August. The Fund maintains that the levy is a critical policy tool designed to discourage inefficient self-generation and force industries to transition toward the national electricity grid.
Data presented to the IMF highlighted the growing financial strain on the energy sector, with Sui gas companies incurring losses of approximately Rs104 billion in the first half of the current fiscal year. While Pakistani officials attributed these losses to a shift in consumption patterns caused by high levies, the IMF pointed toward long-term LNG contracts and lower power sector demand as the primary drivers of the deficit. The Fund also expressed skepticism regarding the government’s proposal to link exemptions to efficiency audits, noting that industries have historically resisted third-party verification despite having ample time to comply with such standards.
The disagreement extends to the technical calculation of the levy itself. The government has proposed revising the formula to reflect a weighted average of peak and off-peak industrial tariffs, rather than the current linkage to peak tariffs alone. While the IMF has agreed to review this specific proposal, it has not yet taken a final position. For export-oriented industries, the rising levy presents a significant challenge, as it threatens to push energy costs to unsustainable levels at a time when electricity prices are already elevated.
Furthermore, the IMF has yet to finalize its stance on the government’s ambitious Rs1.5 trillion plan to reduce gas-sector circular debt, which relies on higher fuel levies and the utilization of dividends from state-owned energy companies. These differences over energy policy, alongside ongoing debates regarding tax collection targets and fuel subsidies, remain key hurdles as Pakistan works toward securing a staff-level agreement. The outcome of these negotiations will be pivotal for the country’s industrial competitiveness and its broader fiscal stability under the current IMF program.
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