Irrational energy policies |
Pakistan’s energy policies have become a master-class in economic self-sabotage. Designed to force industry off captive generation and onto the national grid, the off-grid levy has failed to deliver its intended transition.
Instead, it has accelerated demand destruction as industrial users migrate to cheaper alternatives, created a structural surplus of RLNG that has pushed the gas sector further into fiscal chaos, and penalized export-oriented industries that invested in clean, high-efficiency cogeneration to secure lower-emission, reliable, and affordable energy.
Against expectations of 1,500 to 2,000 MW, only about 600 to 800 MW of captive load has shifted to the national grid, following the levy on captive gas in March 2025. The projected benefit of reducing the capacity cost burden by nearly Rs. 0.75 per kWh for all consumers did not materialize, as the modest captive shift was offset by massive solarization.
Consequently, system demand remained stagnant in FY25Q4 and fell 10 percent below benchmark in July 2025. Massive solarization has reshaped power sector demand, with 17 GW imported in 2024 displacing around 25 TWh annually, and 13 GW imported to date in 2025 reducing demand by a further 19 TWh. The combined effect of net-metered, behind-the-meter, and off-grid solar PV has suppressed power demand.
In parallel, captive gas consumption collapsed by nearly 90 percent year-on-year, worsening the RLNG surplus by 300 to 350 MMCFD. This surplus, contracted at USD 12 per MMBtu under take- or-pay LNG SPAs, has been diverted to households at USD 4 per MMBtu.
The remaining USD 8 per MMBtu gap, amounting to USD 1.1 billion annually, must now be financed by industrial consumers, taxpayers, or absorbed into circular debt: a textbook case of trying to rob Peter to pay Paul in a way that further eroded confidence in the gas market.
Surplus RLNG in the system has also forced curtailment of around 270 MMCFD of indigenous gas production, with OGDCL estimating losses at USD 378 million per annum. The move also disincentivizes exploration and production activities, creating additional long-term pressure on domestic gas supply. The outcome is a liquidity crunch across the gas chain, an increasing depletion rate of 7–9 percent in indigenous supply within the Sui intake, and a lock-in of Pakistan into higher long-run reliance on imported fuels.
As if the irrationality of the captive gas levy weren’t damaging enough, the government doubled down with an equally ill-conceived policy on furnace oil. A petroleum development levy of approximately Rs. 80,000 per tonne was slapped onto domestic furnace oil, pushing its price from about Rs. 130,000 to over Rs. 200,000 per tonne, collapsing local demand almost overnight.
Industries that once relied on FO as a backup energy source were priced out, the government failed to collect any revenue, and refiners were left with no choice but to export it at distressed prices around Rs. 80,000 per tonne, absorbing losses on each shipment while killing the goose, the export industry, that lays the golden eggs. Rather than capturing value, the policy eroded energy security, weakened industrial competitiveness, and turned a viable fuel stream into a stranded liability.
The Captive Power Transition Levy has failed to deliver the International Monetary Fund’s stated objectives. The record shows........