Good News For Pakistani About Electricity Prices are Likely to Decrease in Upcoming 2025-26 Budget
The government plans to allocate Rs. 1.079 trillion for the power sector in FY 2025–26 to reduce electricity tariffs in the 2025–26 budget, set to be presented on June 10, 2025, pending final IMF approval. Recent reductions, including a Rs. 7.41 per unit cut for households in April 2025, have provided relief, and a proposed Rs. 1.079 trillion power sector subsidy aims to further stabilize costs.
During a meeting of the Standing Committee on Privatization, a proposal was presented to the government suggesting that a relief in electricity rates should be provided in the upcoming budget for domestic consumers who use between 200 and 300 units of electricity per month.
Posts on social media suggest the government may avoid tariff hikes in FY 2025–26, focusing on maintaining or lowering rates. Punjab’s Chief Minister Maryam Nawaz Sharif approved a 30–40% tariff reduction for the province on June 3, 2025, potentially influencing national policy.
Power Minister Awais Leghari announced plans to review tariffs with NEPRA to ensure efficiency-driven pricing, reducing reliance on subsidies.
Budget Context
- Presentation Date: Expected on June 10, 2025, pending IMF approval under the Extended Fund Facility.
- Tax Target: Rs. 14,305 billion, with proposed tax reductions in sectors like automotive, potentially freeing funds for energy subsidies.
- Economic Goals: Stimulate growth (projected 4.2% for FY 2025–26) and reduce inflation’s impact on consumers.
Factors Driving Price Reductions
- Energy Sector Reforms:
- Privatization: Plans to privatize or provincialize distribution companies (DISCOs) to improve efficiency and reduce losses.
- IPP Agreements: Termination of contracts with six Independent Power Producers (IPPs) and renegotiation with 16 others under a take-and-pay model.
- Bagasse Plants: Shifted from US dollars to Pakistani rupees, reducing exchange rate risks.
- Return on Equity (ROE): Reduced to 13% for government-owned plants, fixed at Rs. 168 exchange rate.
- Global Oil Prices: A decline saved Rs. 168 billion, enabling a Rs. 1.30 per unit reduction.
- IMF Support: Approval for tariff cuts aligns with fiscal reforms under a $7 billion bailout.
- Circular Debt Plan: A strategy to resolve Rs. 2.393 trillion in circular debt aims to stabilize the sector.
Conclusion
Pakistan’s planned electricity price reductions in the 2025–26 budget build on recent cuts, supported by a Rs. 1.079 trillion subsidy and reforms like privatization and IPP renegotiations. While the Rs. 7.41 per unit and Rs. 1.71 per unit reductions in 2025 provide immediate relief, challenges like circular debt and surplus power persist. By prioritizing efficiency, renewable energy, and demand creation, the government aims to ensure affordable electricity, boosting economic growth and public welfare.
