Pakistan likely to raise gas prices for captive power plants by 50%

Pakistan government has reached an understanding with captive power plants to increase gas prices for captive power plants by 50%, sources informed.

Gas prices for captive power units, primarily installed at export houses, may be increased to PKR 4,500 per mmbtu, to align the prices with other operators.

Prices will increase 10% after six months, followed by another 10% increase in July or November, according to the sources.

The government plans to present this proposal to the International Monetary Fund (IMF) to demonstrate a reduction in energy sector subsidies.

The circular debt in the gas sector has surged from PKR 200 billion to PKR 2500 billion in less than a decade.

Recent gas price hikes in January and November 2023, along with adjustments in February 2024, have temporarily alleviated the sector's financial strain.

The IMF has raised concerns about subsidies provided to export-oriented companies and the growing circular debt caused by the disparity between gas selling and purchasing prices.

As a result, the government will disconnect gas supply to captive power plants starting February 1, 2025, to meet the IMF's conditions for a $7 billion loan package.

The IMF advocates for supplying gas to approximately 1180 captive power plants from the grid, eliminating subsidies for these units.

Captive power plants currently consume 242 mmcfd of domestically procured gas and 154 mmcfd of LNG.

The price gap between commercial consumers and captive power operators was around 21% till 2020.

In 2023 gas prices for captive power plants were increased to PKR 1650 per mmbtu.

By November 2023, captive power plants paid nearly PKR 2500 per mmbtu, compared to PKR 3900 per mmbtu for commercial users.

In July 2024, gas prices for captive power plants increased to PKR 3000 per mmbtu.