- The plan ends the system in which companies subsidized household bills.
- The move could trigger a 1.1 percentage point rise in inflation over the course of the year.
- Industry groups say high prices hurt export competitiveness.
The federal government’s new electricity price proposals will increase inflation and shift subsidy cuts imposed by the International Monetary Fund (IMF) towards middle-class households while easing the pain for industries, analysts say.
The plan, which ends a system in which companies subsidized household energy bills, could trigger a 1.1 percentage point rise in inflation over 12 months, Optimus Capital Management said.
Analysts say the plan, which only needs formal approval to take effect, will lower industrial prices by between 13 and 15 percent and remove 102 billion rupees ($365 million) in subsidies.
This means middle-class households will have to pay around 50% more for electricity, analysts estimate.
Inflation Background
The country has seen one of Asia’s highest inflation rises in 2023, close to 40%, due to a weakening rupee, rising fuel prices and price hikes linked to IMF-backed reforms.
Although inflation has since slowed to 5.8%, analysts warn that changes to electricity prices could increase inflationary pressures.
The Energy Ministry and the IMF did not respond to a request for comment.
Ahtasam Ahmad, energy finance program manager at consultancy Renewables First, said as the purchasing power of the average household has declined significantly, the change “adds to the cumulative effect of inflation that we have experienced after 2022”.
The price revision underscores tensions within Pakistan’s IMF program, which has imposed sharp hikes in utility prices since 2023 to support struggling state-owned power companies.
Industry groups say high prices are eroding export competitiveness in the textile and manufacturing sectors.
Consumers using between 100 and 300 units of electricity per month – representing the majority of paying residential users – will face tariff increases of up to 76% due to new fixed charges under the tariff overhaul, according to Arzachel, a Karachi-based energy consultancy.
Lower income households using 1-100 units per month will see fixed charges increase from zero to Rs 400, the National Electric Power Regulatory Authority (NEPRA) said on Monday.
Solar pricing in question
The regulator also reduced the tariff paid to rooftop solar users who export electricity to the grid, replacing a system that previously valued supplied and purchased electricity equally.
A record increase in solar installations has helped reduce emissions and lower bills for some households, but has reduced revenues for debt-ridden utilities as demand for electricity from the grid declines.
Prime Minister Shehbaz Sharif on Wednesday ordered a review of NEPRA’s solar changes, directing officials to prevent a cost shift from 466,000 solar users to 37.6 million grid consumers.
“Excessively high fixed fees risk pushing consumers toward a complete defection from the network, compromising the long-term stability of the system,” Arzachel said in a note Tuesday.
