Government targets Rs15.74 billion in FY2026-27 as higher levy aims to curb captive gas use and promote grid electricity.
ISLAMABAD: The Captive Power Plant (CPP) Levy will increase to 20 per cent from August 2026 under the implementation schedule of the Captive Power Plant Levy Act, 2025, as the government intensifies efforts to reduce captive natural gas consumption and improve the efficiency of Pakistan’s energy sector.
According to official documents, the levy is being introduced in phases under a framework approved by the Federal Cabinet. It was initially imposed at 10 per cent in July 2025, increased to 15 per cent in February 2026, and is now scheduled to rise to 20 per cent from August 2026.
Gas utilities to collect levy
The documents state that Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL) have been authorised to recover the notified levy through subsequent gas bills issued after the applicable rates are notified.
The amounts collected by the gas utilities are subsequently reconciled with the federal government, while the levy payable by each consumer depends on monthly gas consumption by captive power plants.
Gas consumption declines sharply
Official figures indicate that the levy has significantly reduced natural gas consumption by captive power producers.
Before the levy was introduced, captive power plants consumed approximately 350 million cubic feet per day (MMCFD) of natural gas. Following its implementation, consumption has fallen to around 120 MMCFD, reflecting a substantial shift away from captive gas-based power generation.
The government has introduced the levy as part of broader reforms designed to encourage industries to switch from captive gas-fired generation to electricity supplied through the national grid.
Revenue falls short of expectations
Despite the sharp decline in gas consumption, levy collections have remained well below initial expectations.
The government had projected Rs105 billion in revenue from the levy during FY2025-26, but actual collections amounted to only Rs14 billion.
According to the official documents, the significant shortfall resulted from ongoing litigation, disconnected consumers and non-payment by certain captive power users, leaving a substantial portion of the levy unrealised and unrecovered.
Lower target for FY2026-27
For FY2026-27, the government has adopted a more conservative revenue target, estimating collections of Rs15.74 billion under the Captive Power Plant Levy Act, 2025.
The levy remains a central component of the government’s wider energy sector reform programme, which aims to reduce reliance on subsidised natural gas, improve the financial sustainability of the energy sector, encourage greater use of grid electricity and enhance overall energy efficiency.