CPL Ordinance: Govt misses legislation adoption target: IMF
The shifting of CPPs to the electricity grid to boost grid demand while preserving scarce gas resources to more efficient gas-based power generators remains a reform priority for the sector. The cutoff of CPPs from gas supplies did not happen at end-January 2025 as planned, partly because approximately a quarter of CPPs were not operationally ready to move to the grid.
As an alternative, the authorities decided to use the price mechanism to incentivize the shift to the grid. Specifically, a CPL was introduced on February 1, 2025, which set the price of all gas for CPPs equivalent to the industrial grid plus a 5 percent levy; the levy will increase by an additional 5 percent every six months until it reaches 20 percent in August 2026.
Levy proceeds — the difference between the actual price (levy included) and the OGRA-determined CPP gas price — will be transferred to the electricity grid to reduce the average effective grid tariff (evenly across the existing tariff structure). In support this effort, the authorities have made progress in facilitating service-level agreements between Discos and CPPs, and this should continue as quickly as possible so that CPPs can reliably use the grid.
The government stated that it did not immediately end captive power usage by end-January 2025 as large take-or-pay RLNG import contracts would have led to significant adverse impacts on gas CD.
The government has finalised and shared with all CPPs a service level agreement which sets a performance standard, as prescribed by the NEPRA, of uninterrupted electricity supply for CPPs that connect to the grid, including penalties for Discos that are not able to meet this standard.
Copyright Business Recorder, 2025
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It will impact the country on multiple fronts, including the unavailability or high cost of inputs, a sharp increase in unemployment, poverty, and food insecurity, among other consequences. Therefore, the government will have to take immediate steps to reverse the process. It will have to decide on the market structure, either to leave it to market forces with the invisible hand or to adopt a free market approach with the firm visible hand. It is suggested that the government should pursue a free market, but with a strong, visible hand, not an invisible one. Also, the government will need to develop policies that help farmers lower production costs and enable low-income consumers to afford food. One possible option can be a double-edged subsidy policy. On the one hand, subsidies should be limited to small farmers with landholdings of up to 12.5 acres, in different slabs. For example, farmers with less than one acre should be provided with essential inputs free of charge, and those with 2.5 acres should receive them at half price. Similarly, farmers with less than 7.5 acres should be given a 30% subsidy, and those with up to 12.5 acres should receive a 20% subsidy. Farmers with 25-50 acres should be entitled only to a 10% subsidy. A similar formula should be applied on the consumption side. Government should also divide the consumers into four groups: 1) group-1, people connected with BISP, 2) group-2, people with a monthly income of Rs50,000, 3) Rs100,000, and 4) above Rs100,000. The wheat distribution should be as Rs1200/40kg, Rs1800/40kg, Rs2200/40kg, and wheat at market price, among groups, respectively. This strategy will not only help farmers but also shield the urban poor. The same formula can be applied to other commodities, such as grams, onions, garlic, and meat. THE WRITER IS A POLITICAL ECONOMIST AND A VISITING RESEARCH FELLOW AT HEBEI UNIVERSITY, CHINA
