Govt plans captive gas levy to equalize public, private sector gas suppliers 

The government is preparing to impose a captive gas levy on both public and private sector gas distributors, aimed at ensuring a fair playing field amidst ongoing challenges in Pakistan’s energy sector, Dawn reported.  

This move comes despite the country’s severe natural gas and LNG supply glut, which has led to the postponement of over 170 LNG import cargoes and forced Sui Northern Gas Pipelines Limited (SNGPL) to reduce local gas production.

SNGPL has directed local gas fields to scale back their output, particularly to absorb the expensive LNG purchased under binding international contracts. As a result, more than 300 million cubic feet per day (MMCFD) of local gas production has been curtailed, causing significant financial losses for local producers like state-owned OGDCL and private entities. 

The curtailment has also added pressure on Pakistan’s foreign exchange reserves and has led to higher fixed charges for consumers, despite receiving gas for just a few hours a day.

Simultaneously, SNGPL has begun unannounced rationing, providing gas for only two to three hours during peak times, such as breakfast, lunch, and dinner. This rationing follows the government’s decision to increase fixed monthly charges, which has resulted in a hike in consumers’ monthly bills, even for modest gas usage.

According to the news report, the ongoing gas shortage has created severe cash flow issues for local producers like OGDCL, GHPL, and others. These challenges have hindered their domestic and international exploration activities. 

OGDCL, Pakistan’s largest producer, has voiced concerns over the situation, noting that reduced gas intake from its fields has negatively impacted its operations and revenues.

The government had allowed local producers to sell some of their gas to third parties to help improve cash flow, but this arrangement has sparked a dispute. SNGPL resisted the sale of gas from the Razgir field to third-party suppliers, citing concerns over market distortion. The company also highlighted the Rs791 per unit captive levy imposed on industrial customers, which did not apply to third-party suppliers, prompting some customers to switch to cheaper private gas.

In response to the ongoing infighting and the need for clarity, the Ministry of Law has ruled that the captive gas levy will apply to all consumers of LNG and local gas, regardless of whether it is supplied by public or private entities. The government has tasked the Oil and Gas Regulatory Authority (OGRA) with determining the prices for gas sales to consumers under the new levy framework.

The law also clarifies that while the sale of gas from producers to suppliers is deregulated, the sale from suppliers to captive power plants (CPPs) is not, ensuring that the new pricing structure is properly regulated.

This decision comes as part of the broader efforts to resolve the energy sector’s circular debt, which currently exceeds Rs4.6 trillion. The government is hoping that these measures will help stabilize the sector and ensure a more equitable distribution of gas resources across the country.