IHC suspends notification for gas levy on CPPs

ISLAMABAD: The Islamabad High Court (IHC) has suspended the government’s notification about the gas levy for captive power plants (CPPs).

The government had issued the March 7 notification according to which the rate of the levy shall be increased by five percent immediately and further increased to 10 percent by July 2025, 15 percent by February 2026, and 20 percent by August 2026.

On a petition by the companies running five power plants, Justice Khadim Hussain Soomro noted that the submissions were worth consideration and issued notices to the respondents for April 30,

2025. The sought exception has been allowed, subject to all just and legal exceptions.

The five petitioning companies are limited liability companies engaged in diverse business activities, including electricity generation from natural gas or LNG through their captive power plants.

The petitioners, through senior counsel Makhdoom Ali Khan, challenged the notification and requested the court to declare the 2025 Ordinance unconstitutional and prohibit the respondents from taking any adverse or coercive actions for collecting and/or recovering the levy. The secretary of Petroleum Division, DG of Oil and Gas Regulatory Authority (OGRA), CEOs of Sui Southern Gas Company Limited, Sui Northern Gas Pipelines Limited, and Punjab Industrial Estate Development and Management Company have been cited as respondents in the case.

The government had earlier planned to announce a reduction in power tariff by Rs8 per unit on March 23 (Pakistan Day), but it has been delayed because of the ongoing talks with the IMF on the subject and now it is to be announced sometime in April but it will be effective from April 1, 2025.

However, out of Rs8 per unit, Rs4.73 per unit reduction in tariff will continue permanently as a result of scrapping agreements with six IPPs, revising power purchase agreements (PPAs) of 16 IPPs on Take And Pay Mode, delinking bagasse power plants from US dollar and lining them with Pak rupee and scaling down the RoE (Return and Equity) of government power plants (GPPs) to 13 per cent based on Pak rupee and fixing the value of US dollar at Rs168.

Experts also say that the peak hour tariff also needs to be abolished as it was introduced during electricity shortages. Now since electricity is in surplus, the tariff should be based on off-peak rates. “This will also help reduce the power tariff.” Earlier, the government imposed 5 percent off-the-grid levy (Rs791 per MMBTU) on the newly notified rate of Rs3,500 per MMBtu of RLNG or natural gas for captive power plants (CPPs) set up by the export and non-export industry, increasing the gas price to Rs4,291 ($15.38) per MMBTU. The textile industry in its letter to the prime minister questioned the levy’s calculation of Rs971 per MMBTU on CPPs describing it as incorrect. It argued that even according to the ordinance, the levy comes to negative Rs556.31 per MMBtu.