The Pakistan Textile Council (PTC) has urged Prime Minister Shehbaz Sharif to urgently reconsider a newly imposed gas levy on off-grid captive power plants, warning that the measure threatens export growth and investor confidence.

In a letter addressed to the prime minister, the council objected to a notification issued by the Ministry of Energy’s Petroleum Division setting a levy of PKR 1,243 per MMBtu for December under the Off-Grid (Captive Power Plants) Levy Act, 2025.

Tariff finality under strain

The council said its concern was “not merely about the quantum of the levy” but about what it described as a structural change in energy pricing.

“The Act introduces an executive price overlay ‘over and above’ OGRA’s notified sale price,” the letter stated. “In a tariff-governed network industry, tariff finality is the foundation of regulatory credibility. Once a second discretionary layer can be imposed beyond the regulator’s determined price, the regulator’s tariff ceases to be final.”

The PTC argued that such discretion introduces what it called “sovereign overlay risk” into fuel planning and long-term investment decisions, particularly for export-oriented industries operating high-efficiency cogeneration systems.

The levy, the council said, escalated from PKR 402 per MMBtu to PKR 1,243 per MMBtu within months and includes a built-in increase to 20%. It warned that the unpredictability of pricing raises the cost of capital and shortens financing horizons.

Methodology and cross-subsidy concerns

The letter also criticized the methodology used to justify the levy, saying it relies on comparisons between a delivered electricity tariff, including capacity payments, network charges and other components, and gas input costs for cogeneration plants.

“Comparing these without a disciplined decomposition methodology creates a structural category error,” the council wrote. “Without transparent inclusion and exclusion rules, the computed ‘difference’ cannot be technically reproduced or independently audited.”

The statute does not differentiate between verified high-efficiency cogeneration systems and ordinary generation, the council said, arguing that such systems recover waste heat and reduce emissions and are typically incentivized globally.

“Taxing cogeneration identically to non-cogeneration systems inverts the very efficiency principles that energy reform is meant to promote,” the letter said.

The council further objected to provisions directing levy proceeds toward reducing electricity tariffs for other consumer categories. It described the measure as a cross-subsidy transfer unrelated to gas-sector service cost recovery.

“Cogeneration operators, who do not utilize electricity transmission and distribution networks for their self-generation, are being required to finance burdens within another sector,” the letter said.

Using the SNGPL system as an illustration, the PTC said the blended system basis stands at approximately PKR 1,804 per MMBtu. Captive cogeneration users are paying around PKR 3,500 per MMBtu, and with the additional levy, the all-in cost rises to roughly PKR 4,743 per MMBtu, nearly PKR 2,939 per MMBtu above the blended basis.

The council said recent declines in industrial RLNG consumption, reduced national linepack levels, domestic gas curtailments and LNG cargo diversions reflect demand destruction rather than reform.

Export competitiveness at risk

PTC Chairman Fawad Anwar said the levy undermines tariff certainty.

“If regulator-notified prices can be topped up at will through executive notification, then no energy price in Pakistan is final,” Anwar said. “Investors cannot hedge it. Industry cannot plan for it. Banks cannot finance against it.”

Anwar added that taxing exporters would weaken Pakistan’s competitiveness as the government pursues a $60 billion export target under its “Uraan Pakistan” initiative.

“You cannot tax your exporters into competitiveness,” he said. “If Pakistan is serious about a $60 billion export target, then policy must support productive sectors, not penalize them.”

The PTC called for restoring regulator-led tariff finality, creating a verified differentiation framework for high-efficiency cogeneration, addressing power-sector fixed-cost recovery within the electricity tariff architecture and advancing gas market reforms through third-party access and unbundling.

“Our objective is not confrontation but correction,” the council wrote. “Reform must be methodologically sound, regulator-led and consistent with Pakistan’s industrial and export aspirations.”