Govt Set To Seek IMF Nod for Power Subsidies Elimination
The government is set to seek consent of the International Monetary Fund (IMF) to end tariff subsidies aimed at easing the burden on the national exchequer and industrial consumers.
The government also plans to cut average electricity tariff aimed at increasing the consumption of electricity by the consumers after it had hit the solar net metering by ending exchange of units.
Under the plan, the government is set to phase out tariff differential subsidy by June 1, 2027, after it completes data matching of beneficiaries under the Benazir Income Support Programme (BISP).
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The government will reach consensus on a targeted voucher scheme to protect low-income consumers. Officials said the Power Division and the Poverty Alleviation and Social Safety Division (PASSD) are set to jointly work on a subsidy scheme covering roughly 16.5 million consumers by mid-2027.
The government also plans to increase the utilisation of available generation capacity to about 58 percent by June 2027, which will be up from 52 percent in June 2024.
If the government is able to achieve target of capacity utilization, it will help reduce the volume of capacity payments to the idle power plants which are not operating.
The power division is also working on a plan ot reducing tariff to Rs28.99/kWh and eliminate the Tariff Differential Subsidy (TDS) from June 27 next year.
The National Electric Power Regulatory Authority (NEPRA) has recently set the national average tariff for the 2026 calendar year at about Rs31.59/kWh, which is down from Rs32.73/kWh in 2024-25.
The Power Division is set to brief the visiting International Monetary Fund (IMF) team on the sector’s performance and future strategies. It also includes plans to address longstanding structural issues in Pakistan’s energy market.
The government has also revised its target for reducing the energy sector’s circular debt to Rs1.346 trillion by June 27. Earlier, it had set the goal of Rs1.2 trillion circular debt. As of June 30, 2024, the circular debt amounted to about Rs2.393 trillion.
Islamabad has also approved a Rs200 billion Technical Supplementary Grant to help reach the revised target. The injection has been structured as equity investment in the cash-strapped power distribution companies (DISCOs) aimed at easing liquidity pressures.
In past years, the government has also restructured around Rs2.4 trillion in circular debt which also included refinancing of Rs1.275 trillion at cheaper rates. The consumers are paying a Debt Service Surcharge (DSS) of Rs3.23 per kWh to clear this debt.
The government is also expecting Discos’ recovery rates projected to rise to 97.34 percent by June 2027, ahead of an earlier target of 95 percent.
However, Transmission and Dispatch (T&D) losses may decline only to about 14.7 percent in 2027, whic are slightly above the previous target of 14 percent.
The energy mix is expected to shift gradually and the share of imported fuel in electricity generation may be dropping to 20.5 percent by 2027, which was 24.2 percent in 2024-25. Subsidy outlays planned at Rs1.1 trillion have been projected to be lower, at Rs936 billion for June 2027.