The International Monetary Fund (IMF) has rejected Pakistan’s request to revise a key condition in its $7 billion loan agreement. The IMF insists on imposing a higher gas levy on industrial captive power plants (CPPs). This decision aims to eliminate the cost advantage that CPPs have over the national grid.
Key IMF Condition for Pakistan
The IMF condition requires Pakistan to disconnect gas supply to CPPs by the end of January 2025. This step is crucial for Pakistan to receive the second $1 billion installment of the Extended Fund Facility (EFF) in March 2025.
Key Dates and Details
| Action | Deadline |
|---|---|
| Disconnect Gas Supply | End of January 2025 |
| IMF Review for Tranche 2 | February 2025 |
| Tranche 2 Disbursement | March 2025 |
Industrial Sector Concerns
Industrial groups, especially textile exporters, are opposed to the IMF’s plan. They warn that disconnecting CPPs would create a gas surplus. This surplus could disrupt the LNG supply chain and harm the economy. The surplus might reach up to 50 LNG cargoes per year, totaling 250 cargoes over five years.
Impact of Gas Disconnection
| Impact | Details |
|---|---|
| LNG Surplus | 50 cargoes per year |
| Disruption in Supply Chain | 250 cargoes over five years |
Higher Gas Prices Threat to Competitiveness
The IMF proposes an additional levy of Rs1,700–1,800 per unit on gas supplied to CPPs. This would increase the gas price from Rs2,800–3,200 to Rs5,000 per unit. The industrial sector fears this price hike would hurt their global competitiveness, especially in the textile export market.
Impact on Key Sectors
| Sector | Impact |
|---|---|
| Textile Sector | Decreased export competitiveness |
| Gas Utilities | Financial instability |
Financial Strain on Gas Utilities
Gas utilities like SNGPL and SSGCL already face financial struggles due to their payments to Pakistan State Oil (PSO) for LNG. These utilities fear that disconnecting CPPs could result in losses of over Rs400 billion annually.
Financial Risks to Gas Utilities
| Utility | Potential Losses |
|---|---|
| SNGPL | Rs400 billion+ |
| SSGCL | Rs400 billion+ |
Risk to Investor Confidence
The dispute with the IMF could damage investor confidence in Pakistan’s energy infrastructure. Over $6 billion in LNG-related investments are at risk, and the supply chain is worth $4 billion annually. Investors may hesitate to invest if the disconnection of CPPs occurs.
Investor Risks
| Investment Area | Potential Loss |
|---|---|
| LNG Investments | $6 billion+ |
| Annual LNG Supply Chain | $4 billion annually |
What’s Next for Pakistan?
The government faces a tough decision. While the IMF remains firm in its stance, the industrial sector and gas utilities continue to lobby for a change. The path ahead is uncertain, and the government must balance meeting IMF requirements with addressing domestic concerns.
Measures and Challenges
| Action | Challenge |
|---|---|
| Gas Levy | Higher costs could harm industries |
| Gas Disconnection | Possible disruption in energy supply |
| Financial Losses | Rs400 billion+ losses to utilities |
Pakistan will need to carefully navigate these challenges to ensure both financial stability and economic growth.
