ISLAMABAD: The International Monetary Fund (IMF) is holding discussions with Pakistani authorities on proposed electricity tariff revisions, stressing that any additional burden should not fall on middle- or lower-income households, the lender said in a statement on Saturday.
“The ongoing discussions with the authorities will assess whether the proposed tariff revisions are consistent with these commitments and evaluate their potential impact on macroeconomic stability, including inflation,” the IMF said.
The federal government has proposed a major tariff overhaul as part of efforts to meet conditions under its $7 billion Extended Fund Facility (EFF) programme ahead of the next review. The EFF is aimed at addressing structural economic weaknesses and medium-term balance-of-payments challenges.
Electricity prices carry significant weight in Pakistan’s consumer price index, making any revision politically and economically sensitive, particularly as inflation — though down from nearly 40% in 2023 — remains a key concern.
Pakistan’s power sector has long struggled with circular debt, a chain of unpaid obligations among generation companies, distribution firms and the government. The IMF said the accumulation of circular debt had been contained within programme targets due to improved recoveries and loss prevention measures.
Impact on households and industry
Analysts say the proposed reforms would end cross-subsidies where industrial consumers help finance residential tariffs, potentially increasing inflation while easing costs for businesses.
According to estimates by Optimus Capital Management, the changes could raise inflation by about 1.1 percentage points over 12 months, while reducing industrial electricity prices by 13% to 15% and removing subsidies worth Rs102 billion.
However, middle-class households could face significant increases in power bills, with some analysts estimating costs may rise by around 50%.
Energy experts warned that declining household purchasing power could magnify the inflationary impact of higher tariffs, adding to pressures experienced since 2022.
Consumers using between 100 and 300 units monthly — representing a large portion of residential users — may see increases of up to 76% due to higher fixed charges, according to industry estimates. Even the lowest-income consumers could face new fixed charges under the proposed structure, regulators have indicated.
Solar pricing changes
The National Electric Power Regulatory Authority (NEPRA) has also revised compensation rates for rooftop solar users exporting electricity to the grid, replacing a system that previously treated exported and purchased power equally.
The move comes amid a surge in solar installations that has reduced demand for grid electricity but created financial challenges for utilities already burdened by debt.
Prime Minister Shehbaz Sharif has ordered a review of the solar policy changes, directing officials to ensure costs are not shifted unfairly from solar users to grid consumers.
Energy analysts cautioned that excessively high fixed charges could push consumers to disconnect from the grid entirely, posing risks to long-term system stability.