ISLAMABAD: A proposed $5 billion investment in Pakistan’s oil and gas exploration sector is facing serious uncertainty after the government extended the off-the-grid levy to third-party gas suppliers, industry stakeholders warned, saying the move has rendered private gas distribution commercially unviable.
According to a report in The News, the levy has now been applied to private distributors that procure gas from exploration and production (E&P) companies through competitive bidding at auctioned prices.
Previously, the off-the-grid levy was imposed only on Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) under commitments made with the International Monetary Fund (IMF). Under that arrangement, gas prices for captive power plants were raised to Rs3,500 per MMBtu, with a 5 percent levy introduced in February 2025.
The levy is set to increase gradually to 20 percent by August 2026, pushing the gas price for captive power plants to around $15.36 per MMBtu, inclusive of the levy.
Universal Gas Distribution Company (UGDC) CEO Ghiyas Abdullah Paracha said the company would now merely act as a collection agent for the government, a move that threatens the competitiveness of third-party suppliers. He added that the detailed levy collection mechanism would be outlined in a forthcoming Presidential Ordinance, which has yet to be finalised.
In a letter dated January 13, 2026, the Petroleum Division formally designated UGDC as an agent for levy collection, while a January 9, 2026 notification added the company to the list of authorised entities under the Off the Grid (Captive Power Plants) Levy Act 2025.
Under the amended 2012 E&P Policy and third-party access rules, E&P companies were allowed to sell 35 percent of their gas to private distributors through competitive bidding. Firms such as UGDC purchased gas at auctioned prices of around $8 per MMBtu, paid applicable taxes and charges, and operated on slim margins. This framework improved cash flows for E&P companies, which had long suffered from delayed payments by Sui gas utilities, contributing to a circular debt of Rs3.2 trillion.
On the back of this improved liquidity, E&P companies had committed to $5 billion in upstream investment. However, industry players say the extension of the off-the-grid levy to third-party distributors has effectively collapsed the model.
Unlike SNGPL and SSGC — which procure gas at an average cost of about $4 per MMBtu and pass the levy on to consumers while maintaining guaranteed margins — third-party distributors must absorb the levy on much higher procurement costs, leaving no viable profit margin.
Stakeholders warned that the policy shift has undermined the amended 2012 E&P Policy, jeopardising future upstream investments and discouraging private sector participation in gas distribution at a time when domestic energy production is already under severe strain.
Concerns have also been raised over selective enforcement, as some fertiliser companies reportedly continue to receive gas for captive power plants without being subjected to the levy.
Industry representatives have urged the government to take immediate corrective action, cautioning that failure to address the issue could lead to the loss of critical upstream investment and further erode Pakistan’s export competitiveness while deepening the ongoing energy crisis.
