Donors for power tariff cut sought

Express Tribune

a day ago

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The government on Friday pitched a new package before foreign donors for up to Rs10.5 per unit reduction in prices on additional use of electricity by industrial and agricultural sector consumers to boost demand, which had dipped by one-fifth due to unaffordable prices.
The Minister for Power, Sardar Awais Laghari, shared the broader contours of the Industrial Support Package (2026-28) with over a dozen representatives of international development organisations to seek their diplomatic support to reduce prices.
The package appeared to be gaining traction with lenders, but their observations centred on the sustainability of the increase in demand and the viability of the national grid electricity. They raised concerns about relying solely on price signals to boost dwindling electricity demand instead of implementing comprehensive reforms in the energy sector, which include ensuring the reliability of the national grid power.
The response of the power minister was awaited until the time of filing this story.
Government officials stated that the Power Division had informed foreign donors it wanted to introduce a support package for a period of three years (2026-28) and was counting on their support. Among the participants were the World Bank, the Asian Development Bank (ADB), and other regional and international development organisations.
According to the proposal, the government wants to reduce the current average electricity price of Rs33.5 per unit by Rs10.5, but only on the incremental use of electricity. It has proposed that industrial connection rates will be set at Rs22.98 per unit. For the agricultural sector, the rate will be the same, but the benefits will be Rs7.77 per unit due to the current Rs30.75 per unit price.
Foreign diplomats were informed that the price reduction would only apply to additional electricity use compared to consumption from December 2023 to November 2024. In cases where no reference consumption is available, the higher consumption of the relevant month or the sanctioned load will be used for comparison.
The government claimed that the new package would be a subsidy and cost-neutral, and should neutralise any opposition from the International Monetary Fund (IMF) this time. The IMF had rejected a similar package last year due to its implications for other consumers.
According to the proposal, the Rs3.23 per unit debt servicing surcharge and the quarterly tariff adjustment will not apply to the industrial support package. However, this exclusion could hurt residential consumers, whose debt servicing surcharge may increase further to raise sufficient funds to retire the Rs1.2 trillion debt acquired from banks to address circular debt.
A government functionary noted an element of discrimination, as large numbers of consumers in Sindh might shift to the national grid due to high gas prices, making them eligible for incremental benefits compared to Punjab-based industries that already rely heavily on the national grid.
Due to unaffordability, industrial consumers are increasingly moving away from the national electricity grid. Industrial electricity demand dropped by 20% over the past two years. Consequently, the number of net-metered industrial consumers surged to nearly 6,900 in fiscal year 2024, compared to just 1,570 in 2022. Electricity tariffs for industrial consumers in Pakistan are among the highest in the region. Compared to about US16 cents per unit locally, electricity costs US9 cents in India and US10 cents in Bangladesh, Pakistan's two biggest competitors in global markets.
However, concerns remain about the sustainability of the package and whether such price reductions can be beneficial without addressing the underlying issues in the power sector. Foreign diplomats were briefed on reforms the government is undertaking. One participant told The Express Tribune that, upon inquiry, it appeared all such initiatives were falling behind extended deadlines. The competitive market is not yet operational, and the government told participants it may become operational in September. Disputes over wheeling charges persist, and the revised Integrated Generation Capacity Expansion Plan is also facing delays. The privatisation of power distribution companies has not been accelerated, and the government remains unwilling to end the uniform electricity price policy, which penalises Punjab-based consumers for theft in other provinces.
A major lender inquired about the excess generation capacity claim, questioning whether the system can generate power equal to the installed capacity and if the transmission system can handle the full load.
Sources said there were also concerns about the viability of increased demand once the package ends. Evidence from similar industrial support packages in the past showed that demand spikes were typically modest and did not result in sustained grid dependence.
Sources added that potential risks exist that the actual costs of this package might exceed the proposed marginal rate, particularly during the summer season.
One major view was that any effort to restore industrial demand through a support package should be made under a broader framework that balances both price and non-price elements. Implementation risks, grid reliability, and service quality remain critical blind spots that could limit the package's success.
Donors advised the government to restore industrial demand on the grid through a combination of reliable service delivery and sector-wide planning, rather than relying on reactive short-term measures.