Levies, surcharges and royalties – protests and solutions 

For the last more than six weeks, levies, surcharges and royalties have been the talk of the town. A political party has been organising country-wide protest meetings, sit-ins (dharnas) and also threatening to launch a long march if the Petroleum Levy is not withdrawn in order to minimise the financial burden on the people at large. As per the latest developments, the political party leadership, on a request from Prime Minister Muhammad Shehbaz Sharif, had postponed its long march plans till early October, thereby allowing the PM to come up with some more major relief plans/initiatives.

Petroleum Levy is not just one levy, as a matter of fact. There are also ten other Levies, Surcharges and Royalties, such as Natural Gas Development Surcharge, Royalty on Oil and Gas, Discount on Local Crude Oil, Windfall Levy on Crude Oil & Natural Gas, Gas Infrastructure Development Cess, Petroleum Levy on Liquefied Petroleum Gas (LPG), Windfall Levy on Gas, Off-the-Grid (Captive Power Plants) Levy, and Climate Support Levy.

According to the information available from the official documents, these levies, surcharges and royalties pertaining to the Oil and Gas Sector are one of the major sources of revenue generation for the Federal Government. The Federal Government had anticipated receipts on this account of Rs. 1,887,682.000 million during the financial year 2025-26. Against this, the receipts accounted for somewhat lower figures of Rs. 1,790,296.000 million as per revised figures for the last fiscal year. It may also be mentioned here that the Federal Government had received Rs. 48,000.000 million on account of the Climate Support Levy, which was introduced during the last financial year. The Federal Government has anticipated revenue of Rs. 1,997,893.000 million during the current financial year 2026-27 as receipts from the Oil and Gas Sector.

A brief introduction of these Levies, Development Surcharges and Royalties on Oil and Gas is given below for the kind information of all those directly or indirectly concerned and affected, as well as the people at large, who should know what the revenue generation sources of the Federal Government were.

Petroleum Levy: The Petroleum Products (Petroleum Levy) Ordinance 1961, amended from time to time, provides for the imposition of Petroleum Levy. The ex-refinery/import price of oil is added with Inland Freight Equalization Margin, Oil Marketing Companies’ distribution margin and dealers’ commission as fixed by the Government of Pakistan in rupees per litre. On this accumulated price of oil, Petroleum Levy is fixed by the Government of Pakistan in rupees per litre from time to time.

Natural Gas Development Surcharge: As per the Natural Gas Development Surcharge Ordinance 1967, every company as mentioned in the Schedule shall collect and pay to the Federal Government a development surcharge equal to the differential margin, i.e. the amount by which the fixed sale price exceeds the prescribed price, in respect of natural gas sold by it.

Royalty on Oil and Gas: According to Article 161 (1)(a) of the Constitution of the Islamic Republic of Pakistan, the royalty collected by the Federal Government shall not form part of the Federal Consolidated Fund and shall be paid to the provinces in which the well-head of natural gas is situated. As per Clause 5 of the National Finance Commission Award notified vide President’s Order No. 5 of 2010, each of the provinces shall be paid in each financial year, as a share in the net proceeds of the total royalties on crude oil, an amount which bears to the total net proceeds in the same proportion as the production of crude oil in the province in that year bears to the total production of crude oil.

The Petroleum Exploration and Production Policy 2012, approved by the Ministry of Petroleum & Natural Resources, Government of Pakistan, imposes royalty on exploration and production of oil and gas. Clause 4.1 of Section II of the said policy provides that royalty will be payable at the rate of 12.5% of the value of petroleum at the field gate. The royalty will be paid by the Federal Government to provinces to the extent of their share of liquid and gaseous hydrocarbons (such as LPG, NGL, solvent oil, gasoline and others), as well as all substances, including the year. The amount shall not be deductible from the royalty payment. Ten per cent of the royalty will be utilised in the district where oil and gas is produced for infrastructure development.

Discount on Local Crude Oil: Crude Oil and Natural Gas are explored/extracted by Exploration and Production Companies working under “Petroleum Concession Agreements (PCA).” Exploration and Production Companies sell crude oil to refineries at the rate prevailing in the international market, based on the formula as per the PCA. Under various agreements, E&P companies agree to sell crude oil to refineries at different discounted rates upon attainment of certain milestones as per the PCA. The amount of discount is retained by the refineries while making payment for crude oil to E&P companies and deposited under the Government head of account.

Windfall Levy on Crude Oil & Natural Gas: As per the Petroleum Exploration & Production Policy 2012, Windfall Levy will be applicable on crude oil and condensate using the formula, i.e. WLO = 0.4 x (M.R) x (P.B), where WLO = Windfall Levy on crude oil and condensate; M = Net production (petroleum produced & saved); R = Royalty; P = Market Price of crude oil and condensate; and B = Base price. All the benefits of windfall levy may be equally divided between the Federal Government and the Provincial Government concerned.

Gas Infrastructure Development Cess: The Gas Infrastructure Development Cess Act 2015 provides a legal framework to levy and collect the Cess from gas consumers other than domestic sector consumers at the rates provided in the Second Schedule to this Act. The gas company shall be responsible for billing of Cess to gas consumers, its collection and onward payment to the Federal Government in the manner prescribed by the Federal Government. As per Section 4 of the Act, the Cess shall be utilised by the Federal Government for or in connection with infrastructure development of the Iran-Pakistan Pipeline Project, Turkmenistan-Afghanistan-Pakistan-India (TAPI) Pipeline Project, and LNG or other ancillary projects.

The major billing companies are: (1) Sui Northern Gas Pipelines Limited, (2) Sui Southern Gas Company Limited, (3) Mari Petroleum Company Limited (formerly Mari Gas Company Limited), (4) Pakistan Petroleum Limited, (5) Tullow Pakistan Development Limited, and (6) Oil and Gas Development Company Limited. Rates of Cess (Rs/MMBTU) are Rs. 300 for Fertilizer Feed, Rs. 200 for Captive Power, Rs. 100 for Industry, Rs. 100 for KESC/GENCO, Rs. 100 for IPPs, Rs. 283 for CNG Region-I, and Rs. 200 for CNG Region-II.

Climate Support Levy: Climate Support Levy is also imposed under Section 3 of the Petroleum Products (Petroleum Levy and Climate Support Levy) Ordinance, 1961, amended from time to time, and applied per litre on petroleum products with effect from 1st July 2025 and collected in a manner similar to the Petroleum Levy.

Captive Power Plants Levy: The Captive Power Plant Levy Act 2025 and the framework approved by the Federal Cabinet allow both SNGPL and SSGCL to recover the notified levy through their respective subsequent gas bills issued after the notification of rates. Thereafter, the amounts collected and deposited are reconciled accordingly. The collection of the levy is subject to change depending on monthly gas consumption by captive consumers.

Under the CPP Levy Act 2025, the 10% levy was to be implemented by February 2026 and 20% by August 2026. Captive Power gas consumption before levy imposition was up to 360 MMCFD; post-levy, gas consumption declined to around 120 MMCFD overall. The non-realised/uncovered amount is due to litigation cases, disconnected consumers and non-payment by consumers.

The language used above is as per the language used in the official document from which the above information has been taken.

The writer is a Lahore-based freelance journalist, columnist and retired Deputy Controller (News), Radio Pakistan, Islamabad.