The looming elimination of ‘captive power’ in Pakistan’s gas sector, set as a structural benchmark by the IMF for January 2025, is a move that could send shockwaves through the industrial landscape. This policy change, which misclassifies in-house power generation as ‘captive’ gas tariff, aims to redirect resources towards more efficient RLNG-based Government Power Plants (GPPs). However, the recent analysis from Socioeconomic Insights and Analytics paints a grim picture, suggesting that this shift could lead to deindustrialisation, with potential export losses hitting a staggering $3 billion and over three million jobs on the chopping block.
Let’s face it: the implications of this decision extend far beyond mere numbers. The very fabric of Pakistan’s industrial sector, already teetering on the brink due to a myriad of economic challenges, stands to unravel further. Many industries rely on in-house power generation to maintain their operations, a lifeline that has been upheld by the Supreme Court. By cutting off gas supply to these captive power plants (CPPs), the government risks not just industrial output but also the broader economic stability that hinges on these sectors.
Take the textile industry, for instance, which has invested heavily in gas-fired power facilities. The removal of gas from these setups would mean a sunk cost of Rs128 billion. Transitioning to the national grid, which is notoriously unreliable and plagued by frequent outages, is no walk in the park. It demands not just time but also significant financial investments in new infrastructure. The cost of doing business could skyrocket, and with it, the competitive edge of Pakistani exports.
Moreover, the proposed policy threatens to undermine the very goals of expanding renewable energy and advancing cleaner cogeneration technologies. The current system, where CPPs consume around 176 mmcfd of RLNG, is already under strain. With no other sector poised to absorb this demand, the risk of increased Unaccounted-for Gas (UFG) rates looms large, which could further erode revenue streams and stifle improvements to gas infrastructure.
The reality is that the GPPs, while theoretically more efficient, often operate at a fraction of their potential. Real-world efficiency rates hover around 52-53%, dropping even lower when factoring in transmission losses. In contrast, onsite generation facilities like Combined Heat and Power (CHP) systems can achieve up to 90% efficiency. This stark difference underscores the folly of sidelining self-generation in favor of a grid that can’t keep pace with demand.
The financial ramifications are equally dire. The elimination of captive power could lead to a Rs390.8 billion revenue shortfall for Sui companies, jeopardizing the cross-subsidy that keeps residential gas rates manageable. This isn’t just a technical issue; it’s a social and political powder keg waiting to explode. The potential for increased unemployment and economic contraction is real, and policymakers must grapple with the consequences of their decisions.
In an age where energy security and sustainability are paramount, the focus should shift towards a balanced energy strategy that incorporates both grid-based and localized power generation. Rather than treating captive power as a burden, it should be recognized for its role in supporting industrial growth and economic resilience. The government needs to reconsider its approach and reclassify in-house power generation as integral to industrial processes, reflecting its actual usage and contribution to the economy.
As the clock ticks down to the January 2025 deadline, the onus is on decision-makers to adopt a holistic, data-driven strategy that maximizes efficiency, minimizes risks, and lays the groundwork for sustainable economic development. The stakes are high, and the time for action is now.
