Federal government to seek International Monetary Fund's understanding on penalty defaults during Budget discussions, due to ongoing political disagreements between PD and FD parties

The Government of Pakistan has initiated a mechanism to pass on the benefits of the Off the Grid (Captive Power Plants) Levy to power sector consumers. This levy, imposed on natural gas-based captive power plants, is intended to encourage their transition to the national electricity grid.

On August 26, 2025, the Power Division briefed the Economic Coordination Committee (ECC) about the levy and its implications. The briefing followed the submission of proposals by the Power Division to the ECC, which included passing on relief of the levy for all consumers except lifeline consumers, a proposed mechanism to pass on the levy, and authorization for the Power Division to issue guidelines to NEPRA.

The levy rate is set to increase over time, starting at 5 percent and reaching 20 percent. The agents, as defined in the Act, are responsible for billing, collection, and onward payment of the levy to the Federal Government.

The Power Division has proposed that the relief to consumers would be possible only if it is considered over and above the regular budget of the Power Division. The Power Planning & Monitoring Company (PPMC) will work out the relief to be passed on to entitled electricity consumers and submit the information to NEPRA for approval.

The benefit of the levy will be passed on to electricity consumers with a lag, meaning the benefit of levy collected in January will be passed on in the billing month of March based on their consumption in January. NEPRA has recommended that mechanics of passing on relief to consumers may be made part of monthly FCA submitted by CPPA-G.

However, there is no available information regarding the International Monetary Fund (IMF) Commission's response to whether the petroleum tax on power plant operations should be treated as part of the regular budget or as a tax beyond the annual budget. After detailed discussion, the ECC has directed to seek necessary clarification from the IMF on the proposal.

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 Law Division endorsed the proposal and stated that no comment is required from a legal point of view.

The Ministry of Commerce proposed that the benefit may be passed to industrial consumers only, but this was contradictory to the provisions of the Act. The summary of the proposal was circulated to the Finance, Commerce, Petroleum, Law & Justice, and Industries & Production Divisions, and NEPRA for views and comments.

As the Government awaits clarification from the IMF, the modalities on transition, calculation, and additional benefit to the consumer will be chalked out later. The Government's aim is to use the collected levy to reduce power generation tariffs for all consumer categories of the power sector.