This week, the Petroleum Division plans to start issuing notices to Captive Power Plants (CPPs). They must disconnect gas supplies as part of a key benchmark in the $7 billion IMF program. A senior official from the Energy Ministry explained that the disconnection must finish by the end of January 2025 to keep the loan program on track.
Disconnecting CPPs could lead to a $13 billion loss in exports, severely affecting the country. The official outlined potential problems, including reduced global buyer confidence, a drop in industrial exports, and losses in foreign exchange, employment, services, and revenue for the Federal Bureau of Revenue (FBR).
The official also pointed out the risk of production losses due to an unstable electricity supply from the national grid, which could halt production. Petroleum Division officials raised these concerns during the IMF’s last visit, noting the financial damage to gas companies and a further $13 billion drop in exports if CPPs were disconnected.
Captive power plants in northern and southern regions receive gas at different rates. If disconnected, selling this large volume of gas to another sector would be difficult. The official mentioned a decrease in gas consumption across all consumer categories, which led to a request to Qatar to defer five LNG cargoes to 2026.
The IMF mission expressed willingness to discuss the issue but did not respond positively. They suggested shifting the industry to grid electricity to manage capacity payments. However, the industrial sector needs stable power from sources like natural gas. Fluctuations in grid electricity could jeopardize critical operations, turning unit investments into sunk costs and requiring additional investments for grid connectivity.
Following the prime minister’s orders, four federal ministers met to tackle the IMF program’s benchmark on CPPs. The ministers discussed obtaining precise data on the impacts of cutting off gas to make a strong case for the IMF. Only the IMF executive board can approve changes to the benchmark.
The official noted that it is not feasible to shift the industrial sector to grid electricity by the end of January. Installing necessary grid stations would take at least 18 months and Rs25 billion. However, there is hope for a 6-12 month extension to stop gas supply and transition industries to grid electricity.
