ISLAMABAD, May 23, 2025 – In a dramatic move to fulfill a major condition of the International Monetary Fund (IMF), Pakistan has passed a game-changing law slapping a 20% levy on all captive power plants—self-generating energy units that operate off the national grid.
This landmark legislation marks a bold step in reshaping the country’s energy landscape and tightening fiscal control ahead of the new budget.
READ MORE: Government to increase captive power transition levy to 20%
The National Assembly, on Thursday, passed the “Off the Grid (Captive Power Plants) Levy Bill, 2025” amid heated opposition. The bill lays out a clear trajectory for the captive power levy—starting at 5%, increasing to 10% in July 2025, 15% by February 2026, and peaking at a full 20% by August 2026.
Pakistan introduced the levy in February 2025 as part of a broader IMF-backed strategy to reform energy use and reduce the ballooning circular debt in the power sector. With nearly 25% of captive power plants still reluctant to transition to the national grid, the government decided to raise costs through a phased levy rather than force disconnection.
Under the new law, all captive power plants must pay a levy based on the cost difference between industrial grid electricity and self-generated power using gas or RLNG. The revenue generated will be channeled directly into reducing power tariffs for consumers across Pakistan, providing much-needed relief in a country grappling with energy inflation.
Clause after clause of the bill spells out the consequences for defaulters, including potential gas supply termination and recovery under the Public Finance Management Act, 2019. Meanwhile, the legislation allows for the levy to be considered an expense for income tax purposes—a small cushion for industry players bracing for financial impact.
The move has sparked concerns from industrialists but is being hailed by government officials as a “turning point” in national energy reforms. The decision targets inefficiency and promotes integration of captive power users into the centralized grid, ensuring better gas utilization and improved power delivery.
With the IMF closely monitoring reforms, Pakistan is clearly signaling that it means business. By targeting the previously unregulated captive power sector, the state aims to bolster transparency, increase revenue, and reduce its reliance on external financial support.
For now, Pakistan stands at the crossroads of energy reform and economic recovery—and captive power producers are at the center of the storm.