ISLAMABAD: The government will seek clarification from the International Monetary Fund (IMF) on whether the Petroleum Levy (PL) on Captive Power Plants (CPPs) should be treated as part of the regular budget or considered over and above the annual budget, as the Power Division and Finance Division hold divergent views on the matter, sources close to the Secretary Finance told Business Recorder.

According to sources, the Power Division briefed the Economic Coordination Committee (ECC) on August 26, 2025, regarding the recently enacted Off the Grid (Captive Power Plants) Levy Act, 2025, which imposes a levy on natural gas-based captive power plants to encourage their transition to the national electricity grid.

Section-4 of the Act provides that the concerned Divisions under Rule of Business, 1973 shall calculate the rate of Levy considering the difference of electricity tariff of industrial B-3 category notified by NEPRA and self-power generation cost of the captive power plant at the gas tariff notified by OGRA.

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In accordance with the Act, the levy rate shall be set initially at 5 percent fixed margin over and above the power tariff, which shall increase to 10 percent from August 1, 2025; 15 percent from February 1, 2026; 20 percent from August 1, 2026, and it will remain at that level thereafter.

Section-3 of the Act sets out that every captive power plant shall pay the determined levy on consumption of natural gas or RLNG, over and above the sale price determined by OGRA.

The agents, as defined in the Act, shall be responsible for billing of levy to captive power plants, its collection and onward payment to the Federal Government. Furthermore, Section-5(1) of the Act also stipulates that “the levy shall be utilized by the Federal Government for reduction of power generation tariff for all consumer categories of power sector”.

The Ministry of Energy (Power Division), further apprised that in this backdrop, a mechanism to pass on benefit of the levy to power sector consumers has been drafted by the Division.

The proposed mechanism stated that the Petroleum Division would ensure remittance of the collected levy to the Finance Division within two days after the closing of each month. Based on information from the Finance Division and electricity sales data, Power Planning & Monitoring Company (PPMC) will work out the relief to be passed on to the entitled electricity consumers.

PPMC would submit this information to NEPRA with request to allow the same to be passed on to the electricity consumers and accordingly NEPRA will issue the determination each month after necessary due diligence. It is to be noted that, the benefit of the levy collected in a month will be passed on to the electricity consumers with a lag i.e. the benefit of levy collected in January will be passed on in the billing month of March based on their consumption in January.

The summary was circulated to the Finance, Commerce, Petroleum, Law & Justice and Industries & Production Divisions, and NEPRA for views and comments.

Petroleum Division supported the proposal and shared views on the mechanism which were already covered in the proposed mechanism. Ministry of Commerce proposed that the benefit may be passed to the industrial consumers only, however, the same was contradictory to the provisions of the Act which provided that the levy shall be utilized to pass the benefit to all categories of consumers.

Law Division endorsed the proposal and stated that no comment is required from legal point of view. NEPRA conveyed no objection to the summary and recommended that mechanics of passing on relief to the consumers may be made part of monthly FCA submitted by CPPA-G which was noted.

Power Division submitted the following proposals for approval of the Economic Coordination Committee (ECC) of the Cabinet: (i) passing on relief of collected Off the Grid (Captive Power Plant) Levy for all the consumers of XWDISCOS and K-Electric except lifeline consumers as per mechanism; (ii) proposed mechanism to pass on Off the Grid (Captive Power Plant) Levy to the electric power consumers; and (iii) authorisation for Power Division to issue following guidelines to NEPRA under Section 31 of NEPRA Act notably (a) NEPRA shall evaluate the monthly data submitted by PPMC and determine the per unit rate of monthly levy benefit to be passed onto entitled consumers as per approved mechanism; and (b) NEPRA shall issue and notify the above determination on a monthly basis along with the monthly fuel charges adjustment(FCA) determination.

During the ensuing discussion, the Power Division informed the forum that while the approval of the mechanism was being sought the modalities on transition, calculation and additional benefit to the consumer would be chalked out later.

The Finance Division argued that this levy would become part of the overall budget of the Power Division for this financial year while remaining within the framework (MEFP) as agreed with the IMF.

The Power Division, however, argued that relief to consumer will be possible only if it is considered over and above the regular budget of Power Division.

After detailed discussion, the ECC directed to seek necessary clarification from the IMF on the proposal.

Copyright Business Recorder, 2025