IMF proposes CPP tariff alignment from Feb

Says govt should supply gas to captive plants by linking tariffs with RLNG prices

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ISLAMABAD:

The International Monetary Fund (IMF) has proposed the alignment of gas tariffs for captive power plants (CPPs) with re-gasified liquefied natural gas (RLNG) prices, effective from February 1 this year.

Earlier, the government agreed with the IMF that gas supply to CPPs would be disconnected. The agreement came in the backdrop of supplies by public gas utilities to the inefficient gas-based power plants. These plants had not been receiving gas at discounted rates but they had been provided electricity from the national grid at cheaper prices.

In the past, the accountability court had also conducted an inquiry, terming gas supply to CPPs at cheaper rates a criminal offence while discouraging supplies to efficient power plants.

Now, the IMF has stressed the need for the government of Pakistan to provide gas to CPPs by aligning tariffs with RLNG prices in order to recover full cost of energy. Another proposal is that the government could impose a levy on CPPs and its collection should be used to retire circular debt, which has choked the entire energy chain.

These CPPs are owned by the textile industry, which is reluctant to pay cotton cess and deposit gas infrastructure development cess worth billions of rupees.

It was explained in a recent meeting of the Cabinet Committee on Energy (CCOE) that the IMF's suggestion about alignment of gas tariffs with RLNG prices was being discussed. This alignment means the baseline gas tariff for CPPs will match the full rupee cost of RLNG, beginning February 1, 2025.

The Petroleum Division briefed the CCOE that the matter pertained to the IMF's recommendation to cut off gas supply to CPPs and provide them with electricity from the national grid by January 2025.

It was highlighted that the matter was taken up with the IMF and as a result an opportunity arose to find an optimal solution. The lender's suggestion was under discussion, which was about alignment of gas tariffs with RLNG prices.

In addition, the CPPs that do not connect with the power grid will face penalty in the form of a federal levy and the revenue generated could be utilised to reduce power tariffs for end-consumers. However, the government asked that the revenue received could be utilised to reduce circular debt. This proposal has not been accepted so far.

The CCOE was apprised that CPPs were hesitant to pay the proposed high price and levy. One of the options was to disconnect their gas supply after serving notices as per their contracts.

However, the committee observed that it was not a tenable option and the matter could be further negotiated to come up with possible alternatives. It noted that the imposition of a levy may be complex from the legal point of view and it needed to be discussed before reaching any conclusion.