Pakistan’s proposed revisions to power tariffs will likely fuel inflation and transfer the burden of IMF-mandated subsidy cuts onto middle-class households, while providing relief to industries, analysts say.
The plan, ending a system where businesses subsidised household energy bills, could trigger a 1.1 percentage point jump in inflation over 12 months, Optimus Capital Management said.
Analysts say the plan, which only needs formal approval to come into effect, will cause industrial prices to fall between 13% and 15% and remove 102 billion ($365 million) rupees in subsidies.
That means middle-class households will have to pay roughly 50% more for power, the analysts estimated.
Inflation Backdrop
Pakistan endured one of Asia’s highest inflation spikes in 2023, nearing 40%, driven by a weakening rupee, rising fuel costs and price hikes linked to IMF-backed reforms.
Although inflation has since slowed to 5.8%, analysts warn the changes to power prices could add inflationary pressure.
Ahtasam Ahmad, Energy Finance Program Lead at consultancy Renewables First, said that because purchasing power for the average household had significantly declined, the change “adds to the compounding effect of inflation which we have experienced post-2022.”
The pricing overhaul underscores tensions within Pakistan’s IMF programme, which has mandated steep utility price hikes since 2023 to support struggling state power firms.
Industrial groups say high prices erode export competitiveness in textiles and manufacturing.
Solar Pricing In Question
The regulator has also cut the rate paid to rooftop solar users exporting power to the grid, replacing a system that previously valued supplied and purchased electricity equally.
A record surge in solar installations has cut emissions and lowered bills for some households but squeezed revenues at debt-laden utilities as demand for grid power declines.
Prime Minister Shehbaz Sharif on Wednesday ordered a review of NEPRA’s solar changes, directing officials to prevent a transfer of costs from 466,000 solar users to 37.6 million grid consumers.
(With inputs from Reuters)
