Government Seeks IMF Approval to Pass CPP Levy onto Electricity Consumers

The government has decided to seek approval from the International Monetary Fund (IMF) to redirect the levy collected from captive power plants (CPPs) to electricity consumers.

Already, a proposal has been approved that the CPP levy will be utilised to provide relief to consumers.

The issue was taken up in a recent meeting of the Economic Coordination Committee (ECC).

During discussion, the Power Division informed the ECC that while approval of the mechanism was being sought.

Its detailed modalities pertaining to transition, calculation and additional benefits to consumers would be finalised later.

The Finance Division was of the opinion that the levy would form part of the overall budget of the Power Division for the current financial year.

While remaining within the Memorandum of Economic and Financial Policies (MEFP) framework agreed with the IMF.

However, the Power Division maintained that the relief to consumers would only be possible if considered over and above the regular budget of the division.

The ECC directed the division to seek necessary clarification from the IMF.

The Petroleum Division backed the proposal and shared its views on the mechanism, which had already been incorporated.

The Ministry of Commerce proposed that the benefit be provided only to industrial consumers.

However, it was found contradictory to the Act, which stipulates that the levy shall be utilised to pass the benefit on to all categories of consumers.

The Law Division endorsed the proposal, stating that no further legal comment was required.

The National Electric Power Regulatory Authority (Nepra) had no objection and recommended that the mechanism for providing relief to consumers be made part of the monthly fuel cost adjustment (FCA) request submitted by the Central Power Purchasing Agency-Guarantee (CPPA-G).

The Finance Division and the Ministry of Industries & Production did not come up with their views despite multiple reminders and were given the opportunity to do so during the meeting.

The Ministry of Energy (Power Division) said that Parliament had enacted the Off the Grid (Captive Power Plants) Levy Act, 2025 to impose a levy on natural gas-based CPPs in order to facilitate their transition to the electricity grid.

Section 4 of the Act provides that the concerned divisions, under the Rules of Business, 1973, shall calculate the rate of the levy by considering the difference between the electricity tariff of the industrial B-3 category notified by Nepra and the self-generation cost of CPPs at the gas tariff notified by Ogra (Oil and Gas Regulatory Authority).

In accordance with the Act, the levy shall be set initially at a fixed 5% margin over and above the power tariff, which shall increase to 10% from August 1, 2025, 15% from February 1, 2026 and 20% from August 1, 2026. It will remain at that level thereafter.

Section 2 of the Act provides the legal basis for the imposition of the levy and empowers Ogra to determine the applicable tariff.

The mechanism for calculation of the levy for CPPs has been modeled on the similar provisions notified earlier.

Furthermore, the Act authorises the federal government to notify the categories of power consumers eligible to receive the benefit of the levy.

The Ministry of Energy (Power Division) explained the mechanism for passing on the benefit to consumers.

The proposed mechanism provides that the Power Division will ensure the remittance of the collected levy to the Finance Division at the close of each month.

Based on data compiled by the Power Planning & Monitoring Company (PPMC), the amount to be passed on to electricity consumers will be calculated.

PPMC will share this information with Nepra, with a request to adjust it in consumer tariffs.

Nepra will then include the benefit in the FCA and carry out necessary due diligence.

It was noted that the benefit of the levy, collected in January, would be given to electricity consumers in the billing month of March, based on consumption in January.

In light of the above, the approval of the ECC was sought for passing on the benefit to all electricity consumers and for authorising the Power Division to implement the mechanism in consultation with Nepra under Section 31 of the Nepra Act.

Nepra will evaluate the monthly data provided by PPMC to determine the per-unit rate of the levy to be passed on to eligible consumers as per the approved mechanism and notify its determination every month along with the FCA.

The Ministry of Energy (Power Division) solicited approval of the ECC for the proposal.

The ECC considered a summary titled “Relief to Power Consumers on Account of Captives Transition Levy” and approved the mechanism.