The federal government has announced a long-awaited reduction in electricity tariffs, slashing rates by Rs7.41 per unit for residential consumers and Rs7.59 per unit for commercial users.
The move, unveiled by Prime Minister Shehbaz Sharif on Thursday, aims to alleviate financial pressure on households and businesses while maintaining fiscal discipline under the International Monetary Fund (IMF) program.
Following the announcement, residential consumers will now be charged Rs34.37 per unit, a step the government hopes will stimulate industrial activity and provide relief to inflation-stricken citizens. “Unless we significantly cut electricity rates, Pakistan’s industry, agriculture, trade, and exports cannot grow,” said PM Shehbaz.
The reduction in power tariffs follows extensive deliberations with the IMF and a series of strategic policy adjustments in the energy sector. The key measures that facilitated the tariff cut include:
- Termination and renegotiation of Independent Power Producer (IPP) agreements: The government ended contracts with six IPPs and revised agreements with 16 others under a take-and-pay model, reducing capacity payments and bringing greater flexibility to the sector.
- Conversion of bagasse power plants’ currency: These plants’ financial dealings have been shifted from US dollars to Pakistani rupees, shielding electricity pricing from exchange rate volatility.
- Return on equity (ROE) adjustments: The ROE for government-owned power plants has been reduced to 13%, fixed at an exchange rate of Rs168.
- Global oil price decline: A drop in international oil prices has contributed to the government’s ability to cut tariffs, saving approximately Rs168 billion and enabling an additional Rs1.30 per unit reduction.
- Circular debt resolution: The government has devised a plan to address Rs2,393 billion in circular debt, a longstanding challenge that has hindered energy sector stability.
The prime minister underscored that the reduction in electricity prices aligns with broader economic stabilisation efforts. He reiterated the need for urgent privatisation or provincialisation of power distribution companies (DISCOs) to enhance efficiency and reduce losses.
“We need to make difficult but necessary decisions to secure Pakistan’s rightful position on the global stage,” PM Shehbaz remarked. He acknowledged the Army Chief, General Asim Munir, for his support in the government’s economic reform agenda.
The government also plans to make Rs6 of the Rs7.41 reduction permanent, providing long-term relief. Additionally, reports suggest that the Rs35 Pakistan Television (PTV) fee on electricity bills may be removed by July 2025.
The IMF has acknowledged the government’s efforts in stabilising the economy, including freezing fuel prices for three months. Last month, the IMF approved a Rs1 per unit reduction in electricity tariffs, to be financed through levies on captive power plants.
Pakistan’s power generation fell to 6,945 GWh in February 2025, the lowest in five years, indicating a slowdown in economic activity. However, with inflation rates decreasing from a peak of 38% and the policy rate cut from 22.5% to 12%, the government believes these measures will reinvigorate economic growth.
As the country grapples with fiscal challenges, experts believe the reduction in power tariffs could restore public confidence and enhance industrial competitiveness. While the reforms are expected to provide immediate relief, structural changes in the power sector will remain crucial for long-term sustainability.
