Drop in electricity prices likely as govt plans slashing tariff

Islamabad has presented a plan aiming to slash the baseline power tariff by eight to 10 rupees per unit. As per reports, this plan was introduced by the federal government in an attempt to address rising concerns regarding the growing levels of circular debt.

Through this new plan, Islamabad will be able to reduce the debt stock by a staggering 130 billion rupees via repayments. According to reports, these repayments will create some financial breathing room, allowing authorities to provide consumers with cheaper electricity.

Moreover, this plan is set to cut down on current financial losses which the electricity sector is facing. The repayment of debt allows the debtor entity to face lower interest payments in the long run, which ‘saves’ money. The government aims to pass on these savings to the general public in the form of tariff cuts.

Pakistani industries have been struggling because of the surge in electricity prices. Data reveals that power costs have surged by a colossal 155 percent since 2021 because of the government introducing extortionate hikes in electricity tariffs.

Islamabad started levying the aforementioned taxes to help it attain financial support from the International Monetary Fund (IMF). Over the years, however, it has detrimentally affected many industries, especially Pakistan’s breadwinner industry: Textiles.

The textile sector, which is responsible for bringing in over 50 percent of the cash-strapped nation’s export revenues, had been relying on Captive Power Plants (CPPs) instead of the national grid because of the difference in price. However, despite the negative impact of high electricity tariffs, many analysts agree that it was the need of the hour since Pakistan needed immediate assistance to prevent imminent default on its outstanding liabilities. 

According to reports, an IMF review mission is expected to visit Pakistan at the beginning of March 2025. Lawmakers intend to present the plan to reduce electricity costs to IMF executives.

This is not the first time Islamabad has attempted to provide relief to the general public from the sky-high electricity bills. The government’s previous proposal to provide respite by slashing electricity prices was met with rejection from the IMF which makes many analysts wonder if this proposal will be approved.

Borrowing from international lenders frequently comes with restrictions resulting in the government losing the power to make sweeping changes to fiscal policy. The IMF blocking power cost cuts partially explains the historical distaste the general public has for the international lending agency. 

While Islamabad’s proposed tariff cuts may never be realised, consumers and businesses alike did receive a two rupee relief in electricity rates for January 2025.