ISLAMABAD: A planned $5 billion investment in Pakistan’s oil and gas exploration sector has fallen into uncertainty after the government extended off the grid levy to third party gas suppliers, a move industry stakeholders warn has effectively made private sector gas distribution commercially nonviable.
The levy has now been imposed on third party companies supplying gas to industrial consumers, including the Universal Gas Distribution Company (UGDC), despite the fact that they procure gas at auctioned prices from exploration and production (E&P) companies.
Confirming the development, UGDC Chief Executive Officer Ghiyas Abdullah Paracha said the company would now act merely as an agent for collecting the levy on gas supplied to industrial units, adding that the move would strip third party suppliers of their competitiveness in the gas market. He noted that details of the levy collection mechanism would be outlined in a Presidential Ordinance, which is yet to be promulgated.
Earlier, under an agreement with the International Monetary Fund (IMF), the government imposed off the grid levy on Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) for gas supplied to captive power plants. The gas price for captive users was initially increased to Rs3,500 per MMBtu, followed by a 5 percent levy from February 2025.
Under the IMF backed framework, the levy was increased to 10 percent from July 2025 and is scheduled to rise to 15 percent from February 2026, before escalating further to 20 percent from August 2026. As a result, the effective gas price for captive power plants has surged to $15.36 per MMBtu, including a levy of approximately Rs650 per MMBtu.
The sharp increase has severely affected the export oriented industrial sector. Gas consumption by exporters in Punjab has declined dramatically to 25 mmcfd from 180 mmcfd, while in Sindh it has dropped to 90 mmcfd from 210 mmcfd. Industry sources say more than 100 industrial units have shut down due to high gas prices and the unavailability of reliable grid electricity, contributing to a visible decline in national exports.
Under the amended 2012 E&P Policy and third party access rules, E&P companies were allowed to sell 35 percent of their gas through competitive bidding to private distributors. Firms such as UGDC procured gas at auctioned prices—close to $8 per MMBtu—while paying windfall tax, royalty, transportation charges and over 100 percent Unaccounted for Gas (UFG) losses, operating on thin margins to supply industrial consumers. This framework helped E&P companies improve cash flows that had earlier deteriorated due to delayed payments by Sui Gas companies, contributing to a gas sector circular debt of Rs3.2 trillion. In return, E&P firms committed to investing $5 billion in oil and gas exploration and production across the country.
However, industry stakeholders say the extension of off the grid levy to third party distributors has undermined the entire model. While Sui Gas companies procure gas at an average price of around $4 per MMBtu and pass on the levy to consumers with guaranteed margins, third party suppliers procure gas at significantly higher auctioned prices and now face the levy without any viable profit margin.
According to a letter issued by the Petroleum Division on Jan 13, 2026, UGDC has been formally designated as an agent for levy collection. A notification issued on Jan 9, 2026, under Section 9 of Off the Grid (Captive Power Plants) Levy Act 2025, added UGDC to the schedule of authorised levy collecting entities.
Industry sources warn that the policy shift has effectively scuttled the amended 2012 E&P Policy, jeopardising future upstream investment and discouraging private participation in gas distribution at a time when domestic energy production is already under strain. Adding to concerns over policy consistency, sources pointed out that certain fertilizer sector players continue to receive gas for captive power plants without being subjected to off the grid levy, raising questions about selective enforcement and sectoral discrimination. Stakeholders caution that unless corrective measures are taken urgently, Pakistan risks losing critical upstream investment, further deepening its energy crisis and undermining export competitiveness.
