The government of Pakistan has announced plans to increase the Captive Power Transition Levy (CPL) to 20% by August 2026, according to an official document.
This decision follows the authorities’ inability to compel captive power plant owners to shift operations to the national electricity grid voluntarily.
Initially introduced at 5% in February 2025, the captive power levy is part of a broader energy reform plan agreed upon with the International Monetary Fund (IMF). The CPL will rise by 5% every six months, eventually reaching the 20% target. The move is designed to encourage Captive Power Producers (CPPs) to abandon inefficient self-generation and transition to grid-based electricity.
The IMF’s latest country report on Pakistan emphasized the importance of adjusting gas tariffs in line with revenue requirements, while also addressing the country’s persistent circular debt (CD) in the energy sector. The report stressed that progress in reducing the large gas CD stock requires timely adjustments and improved data monitoring. One key priority remains the integration of captive power producers into the grid to optimize gas use for more efficient power generation.
Although authorities initially aimed to cut off gas supplies to all CPPs by January 2025, the plan was postponed. Around 25% of captive power plants were not yet prepared to switch to the national grid. As an alternative, the government opted for a pricing strategy—the CPL—which makes gas for captive power generation costlier over time compared to grid electricity.
Under the scheme, gas prices for CPPs are now aligned with industrial grid rates plus the levy. Proceeds from the CPL—the difference between the levy-included gas price and the standard OGRA-determined price—will be funneled into the electricity grid. This revenue will help reduce the average grid tariff across consumer categories.
To institutionalize this reform, the CPL, currently enforced through an ordinance, must be legislated by the end of May 2025. Authorities are also working to finalize service-level agreements between distribution companies (DISCOs) and captive power users to ensure a seamless transition.
This step marks a critical push to shift Pakistan’s captive power sector toward greater efficiency, energy security, and fiscal sustainability.