The inefficiencies of captive power plants (CPPs) have become a pressing issue in Pakistan’s energy sector, consuming significant amounts of natural gas while delivering subpar performance. On average, CPPs operate at an efficiency of 30-40 per cent, far below the 62 per cent efficiency achieved by grid-connected RLNG power plants.
ENERGY EFFICIENCY
The inefficiencies of captive power plants (CPPs) have become a pressing issue in Pakistan’s energy sector, consuming significant amounts of natural gas while delivering subpar performance. On average, CPPs operate at an efficiency of 30-40 per cent, far below the 62 per cent efficiency achieved by grid-connected RLNG power plants.
Despite claims of higher efficiency, CPP operators have resisted independent audits and even lobbied to remove mandatory efficiency checks, raising questions about their actual performance. Experts argue that the gas allocated to CPPs could instead be redirected to grid plants, which are capable of producing electricity at twice the efficiency level using the same resources, significantly improving energy output and reducing costs.
This misallocation not only leads to wastage but also imposes a financial burden on grid consumers. CPPs have contributed to capacity charges resulting in an annual burden of almost Rs300 billion that is borne disproportionately by non-protected grid users. To explain it further, if CPPs keep even a small amount of 1kW on standby, they create a financial burden of capacity cost on the overall power system amounting to almost Rs160,000 per annum for other electricity users.
CPP operators often misuse industrial gas allocations for power generation, bypassing higher tariffs and distorting the energy market. Aligning with the IMF’s demand to phase out gas subsidies for CPPs offers a solution to this inefficiency, allowing for a more equitable and optimised energy landscape.
The increase in price would substantially shift consumers to the grid thus stimulating power demand. The government has decided to use Rs82 billion from the profit of Sui Gas companies to protect residential consumers and also sell 35 per cent of gas to third parties which will result in slashing the circular debt by Rs71 billion annually.
By gradually transitioning CPPs to the grid, Pakistan can not only accelerate demand for grid electricity, but also reduce idle capacity, and lower tariffs while benefiting both industries and households. Contrary to CPP operators’ claims, this move is unlikely to harm exports. Historical evidence shows industries have successfully operated on grid power during periods of high gas prices, dispelling fears that transitioning to the grid would hinder competitiveness. Experts have called for temporary incentives to facilitate this shift, such as offering discounted grid tariffs and prioritising efficient grid plants in the merit order.
Mandatory efficiency audits for CPPs could ensure transparency and accountability, phasing out units that fail to meet established benchmarks. Separate fixed charges for CPP users could also distribute costs more equitably, alleviating the burden on non-captive consumers.
Phasing out gas supply to CPPs is essential for Pakistan to align with IMF recommendations, reduce circular debt and achieve energy sustainability. This step would eventually optimise resource utilisation, lower electricity tariffs and support long-term economic growth
At the same time, the winter package aka Bijli Sahulat Package introduced by the government for December 2024 to February 2025 aimed at boosting electricity consumption during the low-demand winter months while reducing reliance on gas. Under this scheme, consumers who increase their electricity usage beyond a certain baseline will receive discounts up to 50 per cent, depending on their category and consumption levels. Additional consumption will be charged at a rate of Rs26.07 per unit, significantly lower than the standard tariff, but only for usage exceeding 25 per cent of the historical average over the past three years.
The package applies to domestic, commercial, and industrial consumers and excludes net-metering users or those with faulty meters yet await decent consumption patterns to emerge. The calculation of incremental consumption is based on weighted averages of the last three years, ensuring fairness across user categories.
While this package was aimed at providing immediate relief, the need for a fair gas allocation policy would address the root causes of inefficiencies, making it a necessary long-term solution. Both approaches are complementary, but the focus should ultimately shift to sustainable policies that prioritise fair resource distribution and efficient energy use. By reallocating gas from inefficient sectors like captive power plants to the grid, the government could optimise energy resources and reduce costs in the long term.
The recent price hike in gas prices from Rs3,000/mmmbtu to Rs3,500/mmbtu for CPPs has led them to raise concerns yet again despite them benefitting from gas allocation at the cost of grid customers. At the same time, this increase may help stimulate grid demand slowly and steadily.
‘Recently, The All-Pakistan Textile Mills Association (APTMA) reached out to the Federal Board of Revenue (FBR), urging intervention to support the textile industry by restoring a level playing field for local inputs and ensuring timely and complete refunds. While they aggressively advocate against the curtailment of gas to CPPs, they are now urging for further relief in taxes and have highlighted findings from an independent study which emphasises the need for policy changes to equalise conditions for local and imported inputs in export manufacturing. They consider these to be vital for protecting Pakistan's textile sector and its significant role in the national economy.
Key recommendations include withdrawing GST on local inputs or imposing it on imports to ensure neutrality, fixing the refund system to prevent delays and cash flow issues, and enhancing monitoring mechanisms to curb the misuse of export-related policies. If the goal is to achieve it all, one could draw valuable lessons from the strategies employed by CPPs. However, in a positive turn of events, one of APTMA’s experts recently voiced his agreement for a thorough efficiency audit of CPPs.
Phasing out gas supply to CPPs is essential for Pakistan to align with IMF recommendations, reduce circular debt and achieve energy sustainability. This step would eventually optimise resource utilisation, lower electricity tariffs and support long-term economic growth. The government must act to implement these reforms, ensuring that scarce energy resources are allocated to benefit the nation as a whole rather than a selected few.
The writer is a freelance contributor.
