Pakistan commits to tariff hikes, Rs830 billion subsidy cap under IMF programme

The International Monetary Fund (IMF) has allowed Pakistan to allocate Rs830 billion for power sector subsidies in the FY27 budget while requiring electricity tariff increases from January 15, 2027, under the $7 billion programme, according to news reports. 

Government sources said the subsidy includes around Rs300 billion to cover inefficiencies such as electricity theft and poor recovery, along with tariff differentials, payments for the erstwhile FATA, agricultural tubewells and circular debt servicing.

Pakistan has committed to implementing cost-reflective tariffs through annual rebasing, quarterly tariff adjustments and monthly fuel charge adjustments to ensure financial viability of the power sector amid global energy price shocks linked to the Gulf conflict.

Officials said the government aims to limit circular debt flow to Rs300 billion and reduce it to zero by FY31 through timely tariff revisions and reforms.

The government also assured the IMF of applying net billing regulations to new solar consumers to balance demand between grid and distributed generation.

Privatisation of distribution companies, including Iesco, Gepco and Fesco, has been delayed and is now expected by early 2027, while work is underway to assess privatisation of Nandipur and Guddu power plants.

Authorities said arrangements with independent power producers will be finalised by June 2026, while efforts are ongoing to resolve a dispute with K-Electric that has led to payment arrears.

The government is also advancing structural reforms, including private sector participation in distribution companies such as Hesco and Sepco, with key conditions to be completed by December 2026.

An Integrated Energy Plan is targeted for completion by April 2027, alongside a Circular Debt Management Plan to be approved by July 2026 to guide tariff policy and cost recovery.

Transmission and market reforms are also underway, including operationalisation of the National Grid Company, establishment of the Energy Infrastructure and Development Management Company, and preparations for wheeling auctions under the Competitive Trading and Bilateral Contract Market, with the first 200MW auction planned by June 2026.