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Business Recorder
a day ago
- Business
- Business Recorder
Power tariff hike: Govt reaches ‘understanding' with IMF
ISLAMABAD: The government and the International Monetary Fund (IMF) have reportedly reached an understanding that electricity tariffs will be increased through annual rebasing from July 2025 if the power sector's revenue requirements exceed the allocated subsidy envelope of Rs 1.036 trillion for fiscal year 2025–26, well-informed sources in the Finance Ministry told Business Recorder. This understanding was reached during discussions between Pakistani authorities and the visiting IMF mission held from May 14 to 24, 2025. 'Within the Rs 1.036 trillion envelope, sufficient subsidy will be allocated to ensure zero circular debt flow in FY26. The Petroleum Development Levy (PDL)-financed Prime Minister's package—amounting to Rs 182 billion—will be counted toward the FY26 subsidy,' the sources added. Reduced hydropower, costly fuels: Govt warns of potential hike in power bills Both sides also agreed that any additional financial needs will be met through tariff adjustments during the July rebasing exercise while maintaining a progressive power tariff structure, the sources maintained. According to sources, the IMF emphasized the importance of fiscal discipline, with subsidy levels expected to remain within 0.8% of GDP. These subsidies will be linked to credible targets for stock clearance and loss reduction. The Power Division has been directed to take all necessary steps to implement the measures agreed upon with the IMF. The government had earmarked Rs 1.190 trillion for the power sector for FY2024–26. However, the Power Division has also secured approval for additional subsidies to keep the circular debt flow within the limit agreed with the Fund. The Finance Division has revised and communicated provisional Indicative Budget Ceilings (IBCs), allocating Rs 636.136 billion for sector subsidies under the recurrent budget for FY2025–26, up from the earlier allocation of Rs 400 billion. As the detailed breakdown of the revised subsidy for FY2024–25 is not available, it remains unclear whether the full allocation has been utilized by the Power Division or if deviations occurred. Sources within the Power Division believe that subsidies for FY2025 may exceed Rs 1.2 trillion, driven by growing support for residential consumers and persistent circular debt obligations. 'A sharp increase in protected consumer categories—those consuming less than 200 units per month—is driving higher subsidy needs, as more consumers adjust their consumption or install solar panels to stay within the protected threshold,' the sources said. Cross-subsidy pressures are also rising, as declining industrial and commercial consumption reduces the contribution of higher-paying users to the overall system. The government also plans to clear up to Rs 541 billion in circular debt stock during FY2025, as part of a broader six-year debt reduction strategy. 'Subsidy allocations remain a contentious issue, particularly concerning the treatment of PDL proceeds and their role in budget financing,' the sources continued. Tariff rebasing and further adjustments remain under government consideration to close the subsidy gap. However, political sensitivities and lobbying from industrial stakeholders are limiting policy flexibility. The successful implementation of the Circular Debt Workout and Action Plan (CDWAP) and the ongoing restructuring of Pakistan Holding Limited's (PHL) debt are seen as critical to reducing future interest costs and stabilizing circular debt flows. Additionally, the Finance Division has directed the Power Division to strictly follow mandatory instructions issued to all Principal Accounting Officers (PAOs), heads of departments, and related entities when preparing budget estimates for each cost center and account head. Copyright Business Recorder, 2025
Express Tribune
30-05-2025
- Business
- Express Tribune
Power companies violating agreement: minister
Federal Minister for Energy Ali Pervaiz Malik has stated that power-generating companies are not utilizing imported gas as per agreements and resultantly expensive gas is being sold to domestic consumers at subsidized rates, leading to a rise in circular debt. "The power companies are violating their agreements, which is increasing the liabilities of the national gas importing companies," said Malik, while speaking to the media at the head office of the Sui Southern Gas Company (SSGC) on Friday. The minister revealed that smuggled fuel is spreading like a "cancer," and to curb it, petrol pumps are being registered and digital nozzles installed. "The Oil and Gas Regulatory Authority (Ogra) will become fully digital in two to three months, enabling complete monitoring of fuel supply and sales from refineries to petrol pumps," he said, adding that 85% of moving stock digital tracking has already been completed. The energy minister said no final decision has been made yet to increase the Petroleum Development Levy (PDL), and its enforcement on prices has not taken place for now. He emphasized the need for a coherent and unified energy policy, suggesting that all energy sources must be evaluated on equal standards. Malik highlighted that the government's success in reducing electricity prices and maintaining current petrol and diesel prices is a significant achievement. However, relief in the electricity sector has become a burden on the petroleum sector.
Business Recorder
15-05-2025
- Business
- Business Recorder
Oil and gas sector tax proposals for Federal Budget 2025-26
The upcoming Federal Budget 2025-26 of the country is arriving in a scenario when world is reeling from the shocks of US sanctions on the rest of the world, especially China. The trade war between two superpowers of the world has sent the world economy, particularly oil and gas sector, into a recessionary circle, whereby Crude Oil prices and refinery margins are squeezing, leading to projected closure of upstream and downstream businesses world over. Simultaneously, contrary to the expectations from the alternate sources of energy, Oil and Gas demand continues to grow. Oil and gas sector is the biggest contributor to the national economy. Upstream Exploration and Production (E&P) and downstream (Refineries and Oil Marketing Companies) contribute a substantial chunk of country's budget in the form of Petroleum Development Levy (PDL), Windfall and Discount, Sales Tax and Income Tax and other Federal, Provincial and Local Government levies and taxes. In view of its importance, the budgetary policies and measures should be designed in a way so as to boost the earning capacity of this sector. Challenges being faced by Oil & Gas sector Last year, we witnessed some positive developments in oil and gas sector of Pakistan as major international players had entered the marketing business while all the local refineries of the country were gearing to sign their respective upgrade agreements under the Pakistan Oil Refining Policy-2023 for existing/ Brownfield refineries with potential investment of around US$ 6 billion to the ailing economy of the country. Ideally, the budgetary measures should have been positively inclined to facilitate this investment environment. Unfortunately, the measures adopted were contrary to the expectations; whereby in order to resolve the operational issue of outstanding refunds of OMCs, the major petroleum products were declared as 'Sales Tax Exempt Supplies' disallowing OMCs and refineries from adjusting their input sales tax. Proposals for upcoming budget The government is urged to adopt tax measures proposed by the Overseas Investors Chamber of Commerce and Industry (OICCI), which should restore the confidence of local and foreign investors and facilitate the implementation of Pakistan Oil Refining Policy — 2023 for existing/ Brownfield refineries. The OICCI urges the government to undo the exemption of sales tax on major petroleum products; namely, Motor Spirit (Petrol), High Speed Diesel Oil, Kerosene, and Light Diesel Oil, brought through Finance Act 2024 and these should be declared as Taxable Supplies at an appropriate sales tax rate. The disallowance of input tax has increased the operating costs as well as cost of infrastructure development of the industry; impact for TY 2025 is expected to be more than Rs. 33 billion. The excessive tax burden on the formal corporate sector and especially the oil industry, which is already bearing the brunt of compliance and regulation, requires urgent review to ensure long-term sustainability and competitiveness. Further, taxation regime of E&P companies is governed under the respective Petroleum Concession Agreements (PCAs) signed by the President of Pakistan. The PCAs contain a freezing clause for pricing and taxation to provide fiscal stability and long-term investment security to E&P Companies. Imposing Super Tax on E&P companies violates the fiscal stabilization/freezing clause of the PCAs. Super Tax, originally introduced as a one-time levy, has been extended well beyond its initial scope. In light of the current economic climate and the need to support documented and responsible businesses, OICCI recommends the gradual abolishment of Super Tax in three years. Prices of Petroleum Products (High Speed Diesel and Motor Spirit — Petrol) and the margins thereon are fixed by the Government of Pakistan and cannot be changed unless approval of the relevant Ministries of the Government is obtained. This fixed margin covers all costs related to establishment, development, and set-up of the business and running of the business, including capital cost and financial costs, at the current price, the Minimum Tax eats up around 16% of OMCs' fixed margin. It's recommended that Minimum Tax applicable on Refineries and OMCs should be reduced to 0.25% and abolished in the subsequent year. Since the early 1990s, petroleum products produced by refineries have been exempt from withholding tax under the Income Tax Ordinance, 2001, with the Commissioner granting exemptions in accordance with the law. This exemption was provided because, despite the high sales volume of refineries, their profit margins are low. Due to this change, refineries are facing significant withholding tax liabilities without corresponding income to offset it. It is, therefore, OICCI's recommendation that the Commissioner's power for issuing Exemption Certificates should be reinstated. (The writer is the Managing Committee member of OICCI) Copyright Business Recorder, 2025
Business Recorder
05-05-2025
- Business
- Business Recorder
April's fuel surge
Petroleum sales experienced a notable surge in April 2025, marking a 13-month high for the oil marketing sector. Total volumetric sales reached 1.46 million tons during the month, representing a 32 percent year-on-year increase and a 20 percent rise compared to March 2025. This sharp recovery can be attributed to a combination of factors including a low base from the previous year, seasonal uptick in consumption post-Ramazan, reduced smuggling of petroleum products across the Iran border, and a boost in transportation and harvesting-related demand. Moreover, a significant decline in fuel prices—13 percent lower for motor spirit (MS) and 10 percent for high-speed diesel (HSD) compared to the same period last year—also played a central role in stimulating demand. Breaking down the product-wise performance, MS sales rose by 25 percent year-on-year and 14 percent month-on-month to reach 660,000 tons, underpinned by growing intercity mobility and improving economic activity. HSD volumes climbed to 622,000 tons, a 33 percent jump year-on-year and 28 percent sequentially, reflecting heightened agricultural usage during the harvesting season as well as a reduction in illegal imports. Furnace oil (FO) sales, though constituting a smaller share of the total, witnessed an exceptional increase of 182 percent year-on-year and 55 percent month-on-month to reach 84,000 tons, likely due to greater reliance on FO-based power generation as summer demand kicked in. High-octane blending component (HOBC) volumes also showed significant year-on-year growth, although they remained small in absolute terms. On a cumulative basis, petroleum product sales for the first ten months of FY25 (10MFY25) stood at 13.22 million tons, a 6 percent increase from the same period last year. This growth was largely driven by MS and HSD, which posted gains of 6 percent and 11 percent respectively. In contrast, FO sales fell by 31 percent year-on-year during the same period, consistent with the sector's longer-term shift away from FO for power generation due to cost and environmental considerations. Excluding FO, total petroleum sales stood at 12.6 million tons, up 9 percent year-on-year, highlighting the growing prominence of retail fuels in the country's energy consumption mix. From a fiscal perspective, the government collected an estimated PKR 926–980 billion under the Petroleum Development Levy (PDL) during 10MFY25, against a full-year target of PKR 1.28 trillion as per the research note by AKD Securities. In highlights that in mid-April, authorities raised the PDL on MS and HSD to PKR 77–78 per liter to meet fiscal consolidation goals, partially to finance electricity subsidies in the final quarter of the fiscal year. This policy measure, while boosting revenue, also underscores the balancing act the government must perform between inflation management, revenue generation, and energy accessibility. Overall, the data from April 2025 reinforces the view that petroleum demand in Pakistan remains sensitive to seasonal cycles, pricing dynamics, and enforcement of regulatory controls. The strong monthly rebound also provides a robust base for continued growth in the upcoming months, with industry analysts projecting a 5 percent year-on-year increase in overall OMC sales for FY26, supported by expectations of lower fuel prices and a recovery in industrial and transport activity.
Express Tribune
17-04-2025
- Business
- Express Tribune
Ordinance empowers govt to increase PDL
A presidential ordinance issued late on Tuesday empowered the federal government to increase the Petroleum Development Levy (PDL) on the petroleum products at will and removed the maximum ceiling that had capped it to Rs70 per litre. The ordinance abolished the Fifth Schedule for the levy on petroleum products, which authorised the government to impose any levy at any rate. The ordinance came as the government increased the PDL on petroleum products, instead of reducing the oil prices following reduction in the global market. The government increased the levy on petrol by Rs8.2 per litre to Rs78.2 per litre. Similarly, the levy on diesel was increased by Rs7.1 per litre to Rs77.1 per litre – exceeding the previous cap of Rs70 per litre, according to sources. Later, the government issued a notification to maintain the prices of petroleum products.
