Pakistan’s proposed power pricing overhaul has sparked concern among analysts, who warn that the changes could increase inflation and transfer subsidy burdens from industrial users to middle-class households. The plan, which ends the longstanding system where businesses subsidized household electricity bills, is expected to formally take effect once approved and could trigger a 1.1 percentage point rise in inflation over the next 12 months, according to Optimus Capital Management.
The pricing reforms are designed to ease costs for industrial consumers, potentially lowering industrial electricity rates by 13% to 15% while removing approximately PKR 102 billion ($365 million) in subsidies. Analysts estimate that the shift will result in a nearly 50% increase in electricity costs for middle-class households, disproportionately affecting consumers using between 100 and 300 units per month, who represent the majority of paying residential users. Fixed charges for this group could jump by up to 76%, while the lowest-income households consuming 1–100 units will see new fixed charges of PKR 400 per month, a significant increase from zero, as announced by the National Electric Power Regulatory Authority (NEPRA).
The proposed adjustments come against a backdrop of inflationary pressures in Pakistan. Following one of Asia’s highest inflation spikes in 2023, which nearly reached 40% due to a weakening rupee, rising fuel costs, and IMF-backed reforms, inflation has moderated to 5.8%. Nevertheless, experts caution that higher residential electricity rates could further strain household purchasing power, compounding inflationary effects for consumers already grappling with rising costs of living.
In addition to the conventional electricity tariffs, the pricing changes have also affected rooftop solar users. NEPRA reduced the rate paid to solar consumers exporting electricity to the grid, replacing a system that previously valued supplied and purchased electricity equally. The record surge in solar installations has lowered household bills and emissions but simultaneously squeezed revenues at debt-laden utilities as grid power demand declines. Recognizing these challenges, Prime Minister Shehbaz Sharif has ordered a review of NEPRA’s solar changes, directing officials to prevent cost transfers from roughly 466,000 solar users to the 37.6 million households dependent solely on grid power.
Energy analysts, including Ahtasam Ahmad of consultancy Renewables First, warn that excessive fixed charges may drive households toward full grid defection, undermining long-term system stability. Industrial groups have also expressed concern that artificially high power prices for manufacturing and textiles erode export competitiveness, highlighting the tension between economic policy objectives and household affordability.
The pricing reform underscores ongoing challenges within Pakistan’s IMF program, which has mandated steep utility price adjustments since 2023 to stabilize state-owned power companies. While the initiative may provide relief for industrial consumers and improve financial sustainability for utilities, its potential to raise household costs highlights the delicate balance policymakers must strike between fiscal objectives, energy sector stability, and public welfare.
Overall, the proposed electricity tariff changes in Pakistan represent a significant policy shift with wide-reaching implications for inflation, household budgets, industrial competitiveness, and renewable energy adoption, underscoring the need for careful implementation and stakeholder engagement.
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