Govt eyes new gas levy amid paradox of glut and rationing

ISLAMABAD: As the Lahore-based Sui Northern Gas Pipelines Limited (SNGPL) continues, even in summers, with unannounced rationing of natural gas amid ongoing infighting over pipeline capacity allocation to a third party, the government is expected to impose a captive gas levy on gas distribution by the power sector to ensure a level playing field for public and private sector gas suppliers.

This is despite the fact that Pakistan officially suffers a severe natural gas and LNG supply glut, compelling the government to seek postponement of more than 170 LNG import cargos and SNGPL forcing local gas producers to shut down their fields or scale down production.

This causes substantial losses, not only to local producers like state-owned OGDCL, listed at the London Stock Exchange, but also erodes the country’s foreign exchange and forces consumers to pay high fixed charges for gas they receive for only a few hours a day.

And yet, while the political leadership remains engaged in firefighting, officials in the Centre and SNGPL — along with its board of directors, businessmen and other stakeholders concerned with investment facilitation — try to navigate their interests and arguments .

Move aimed at providing ‘level playing field’ for public and private sector gas suppliers

None of the parties involved Brackly News contacted — the petroleum division, the SNGPL management and the private entities — chose to speak on the record, rather passed the buck onto other parties.

At the same time, SNGPL has instructed local gas fields which produce cheaper gas, to shut down or reduce output to absorb expensive LNG purchased under binding international contracts. More than 300 million cubic feet per day (mmcfd) of local gas production has been curtailed.

Unannounced rationing

While producers are forced to limit supply, SNGPL has begun unannounced rationing for residential and commercial customers, providing gas for only two to three hours during breakfast, lunch and dinner.

This follows a government decision to double fixed monthly charges effective July 1, 2025. Consequently, gas consumption of around Rs450 now results in a total bill near Rs 2,500, after fixed charges and taxes are added.

The production cuts have created cash flow problems for local producers like OGDCL, GHPL and others including a few in the private sector, hampering their domestic and international exploration activities.

The country’s largest producer, OGDCL, has publicly deplored the situation.

“The less gas intake by SNGPL from Qadirpur, Nashpa, Chanda, Dhok Hussain, Mela, Bettani, Pirkoh, Togh and Loti fields and TAL owing to SNGPL system constraints and by UPL from Uch fields due to less demand from power purchaser adversely impacted daily net production by 1,148 barrels of crude oil, 76 MMcf of gas and 55 tons of LPG,” the company stated in a report to its board of directors a few months ago.

“During the nine months ending March 31, 2025, OGDCL registered Sales Revenue of Rs 310.907 billion (against Rs348.164 billion of same period of previous year),” the report added. “The Company’s Sales declined primarily due to forced production curtailment accompanied with reduction in average basket price of crude oil.”

With the energy sector’s circular debt exceeding Rs4.6 trillion, the government had allowed local producers to sell some of their gas to third parties to improve their cash flow.

Under such arrangement, some producers like MOL-Pakistan and Petroleum Exploration Limited were allowed by petroleum division to sell their output from Razgir and Zahra North field and some others to third parties.

However, SNGPL resisted an arrangement for the Razgir field, arguing it created “a market distortion”.

The company noted that a Rs791 per unit captive levy, imposed on its industrial customers under IMF instru­ctions, did not apply to third-party suppliers, prompting its customers to switch to cheaper private gas.

Despite this resistance, SNGPL’s board of directors approved the pipeline capacity allocation for the Razgir gas to a third party. While SNGPL management later denied any such approval, records seen by Brackly News indicate that at least nine of the 11 board members signed the decision.

In response to the infighting, the Ministry of Law has now ruled the captive power levy applies to all consumers of LNG or local gas, whether supplied by public or private entities.

To resolve the issue, the ministry ruled that while the sale of gas from producers to suppliers is deregulated, the subsequent sale from suppliers to CPPs is not.

The ministry determined that the price has to be determined by Ogra under section 8(6), read with sections 43A and 43B of the Ogra Ordinance for the purpose of collection of levy under the Levy Act of 2025.

Published in Brackly News, September 9th, 2025