Pakistan is poised to implement a set of electricity pricing reforms that analysts say will shift subsidy burdens away from businesses and onto households, with material implications for inflation, industrial competitiveness and the finances of state power companies.
Under the proposals - which only require formal approval to take effect - the redistribution of subsidies would end a longstanding arrangement in which commercial and industrial customers effectively subsidised residential energy rates. Optimus Capital Management warned the move could lift headline inflation by about 1.1 percentage points over a 12-month period. At the same time, analysts expect industrial prices to decline by between 13% and 15%, and estimate the policy will remove PKR 102 billion ($365 million) in subsidies.
The net effect, analysts say, will be a heavy hit for middle-class households. Estimates indicate that the reforms will push residential consumers to pay roughly 50% more for power. The proposed new fixed charges will hit those using between 100 and 300 units monthly - the segment that comprises the majority of paying residential users - with rate increases of up to 76%, according to Karachi-based energy consultancy Arzachel. Meanwhile, the lowest-income households consuming 1-100 units monthly will see fixed charges rise to PKR 400 from zero, the National Electric Power Regulatory Authority (NEPRA) said on Monday.
Pakistan has experienced extreme inflation dynamics in recent years. The country recorded one of Asia’s largest inflation surges in 2023, nearing 40%, driven by a weakening rupee, higher fuel costs and price adjustments linked to an IMF-supported reform programme. Although inflation has slowed to 5.8% more recently, analysts caution that the proposed power-price revisions could reintroduce upward pressure on consumer prices.
Requests for comment to Pakistan’s power ministry and the International Monetary Fund went unanswered. Ahtasam Ahmad, Energy Finance Program Lead at consultancy Renewables First, observed that ‘‘because purchasing power for the average household had significantly declined, the change adds to the compounding effect of inflation which we have experienced post-2022.’’
The pricing overhaul highlights tensions inside Pakistan’s IMF programme, which has required steep utility tariff increases since 2023 to shore up the finances of struggling state power firms. Industrial groups have argued that high electricity costs damage export competitiveness for sectors such as textiles and manufacturing; under the proposed scheme, those industries would see lower power costs as the subsidy burden shifts.
Regulatory changes to rooftop solar compensation are an additional flashpoint. NEPRA has cut the rate paid to rooftop solar users who export to the grid, replacing a structure that previously valued supplied and purchased electricity at parity. The country has seen a record surge in rooftop solar installations, which reduced emissions and lowered bills for some consumers but also eroded revenue at debt-laden utilities as demand for grid-procured power weakened.
Prime Minister Shehbaz Sharif on Wednesday ordered a review of NEPRA’s solar changes, instructing officials to prevent a transfer of costs from 466,000 solar users to 37.6 million grid consumers. Arzachel warned in a Tuesday note that ‘‘Excessively high fixed charges risk driving consumers toward full grid defection, undermining long-term system stability.’’
Market context is underscored by the exchange rate used in the analysis: $1 = 279.4500 Pakistani rupees.
Implications in brief
- Household budgets are likely to come under pressure as fixed charges and tariff adjustments raise residential bills substantially.
- Manufacturing and export-facing industries may gain from lower electricity costs, potentially improving competitiveness in energy-intensive sectors.
- Utilities and the government face a recalibration of subsidy expenses and potential revenue impacts from changing consumption patterns, including shifts toward rooftop solar.