Islamabad:
The Government launched on Friday a new package against foreign donors by up to RS10.5 per unit of reduction in prices in the additional use of electricity by consumers of the industrial and agricultural sector to boost demand, which had submerged in a fifth due to inacords prices.
Power Minister Sardar Awais Laghari shared the broader contours of the Industrial Support Package (2026-28) with more than a dozen representatives of international development organizations to seek their diplomatic support to reduce prices.
The package seemed to be winning traction with the lenders, but their observations focused on the sustainability of the increase in demand and the viability of the national network electricity. They demanded concerns about trusting only the price signals to boost the decrease in the demand for electricity instead of implementing comprehensive reforms in the energy sector, which include guaranteeing the reliability of the power of the national network.
The response of the Minister of Power was expected until presenting this story.
Government officials declared that Power’s division had informed foreign donors that he wanted to introduce a support package for a period of three years (2026-28) and that he had his support. Among the participants were the World Bank, the Asian Development Bank (BAD) and other regional and international development organizations.
According to the proposal, the Government wants to reduce the current average electricity price of RS33.5 per unit at RS10.5, but only in the incremental use of electricity. He has proposed that industrial connection rates will be established at RS22.98 per unit. For the agricultural sector, the rate will be the same, but the benefits will be 7.77 per unit due to the current RS30.75 for unit price.
Foreign diplomats were informed that price reduction would only apply to the additional use of electricity compared to consumption from December 2023 to November 2024. In cases where there is no available reference consumption, the highest consumption of the corresponding month or the sanctioned load will be used to compare.
The government said the new package would be a subsidy and neutral in cost, and should neutralize any opposition of the International Monetary Fund (IMF) this time. The IMF had rejected a similar package last year due to its implications for other consumers.
According to the proposal, the RS3.23 debt service surcharge per unit of debt and the quarterly rate adjustment will not be applied to the industrial support package. However, this exclusion could damage residential consumers, whose surcharge for debt service may increase even more to raise sufficient funds to withdraw the debt of RS1.2 Billions acquired from banks to address the circular debt.
A government official pointed out an element of discrimination, since a large number of consumers in SENDH could change to the national network due to high gas prices, which makes them eligible for incremental benefits compared to Punjab -based industries that already depend largely on the national network.
Due to inhalation, industrial consumers are increasingly moving away from the national electricity network. The demand for industrial electricity fell 20% in the last two years. Consequently, the number of industrial consumers mediated by Nets increased to almost 6,900 in fiscal year 2024, compared to only 1,570 in 2022. Electric tariffs for industrial consumers in Pakistan are among the highest in the region. Compared to approximately US16 cents per unit locally, electricity costs US9 cents in India and US10 cents in Bangladesh, the two largest competitors in Pakistan in global markets.
However, there are concerns about the sustainability of the package and if such price reductions can be beneficial without addressing underlying problems in the electricity sector. Foreign diplomats were informed about the reforms that the government is undertaking. A participant told The Express PAkGazette that, when investigating, it seemed that all these initiatives were staying behind. The competitive market is not yet operational, and the government told participants that it can work again in September. Disputes on wheel officials persist, and the integrated generation capacity expansion plan also faces delays. The privatization of energy distribution companies has not accelerated, and the government is not willing to end the uniform policy of electricity prices, which penalizes consumers with headquarters in Punjab for theft in other provinces.
An important lender asked about the claim of excessive generation capacity, questioning whether the system can generate energy equal to installed capacity and if the transmission system can handle the full load.
The sources said there were also concerns about the viability of greater demand once the package ends. The evidence of similar industrial support packages in the past showed that the demand peaks were typically modest and did not result in a dependence on the sustained network.
The sources added that there are potential risks that the real costs of this package could exceed the proposed marginal rate, particularly during the summer season.
An important opinion was that any effort to restore industrial demand through a support package must be made under a broader frame that balances the price and not price elements. The implementation risks, the reliability of the network and the quality of the service remain critical blind points that could limit the success of the package.
Donors advised the government to restore industrial demand on the network through a combination of reliable services and planning throughout the sector, instead of depending on short -term reactive measures.
