ISLAMABAD: The Power Division is working on a plan to reduce the national average electricity tariff to Rs28.99 per kilowatt-hour (kWh) and eliminate the Tariff Differential Subsidy (TDS) by late June 2027, well-informed sources told Business Recorder.
For calendar year 2026, the National Electric Power Regulatory Authority (NEPRA) has already set the average national tariff at Rs31.59 per kWh, down from Rs32.73 per kWh in 2024-25. The proposed reduction aims to further ease consumer burden while improving sector sustainability.
The Power Division is expected to brief the visiting International Monetary Fund (IMF) mission on the power sector’s performance, reform progress and future roadmap during ongoing review discussions.
Circular Debt and Financial Measures
Circular debt, which stood at Rs2.393 trillion as of June 30, 2024, was initially projected to decline to Rs1.2 trillion by June 27, 2027. However, the revised target is now Rs1.346 trillion.
To stay aligned with IMF commitments, the government recently approved a Rs200 billion Technical Supplementary Grant (TSG). The amount has been structured as equity injection into power distribution companies (DISCOs) to ease cash flow constraints and manage circular debt levels.
Additionally, the government has refinanced Rs1.275 trillion of circular debt at lower interest rates as part of a broader Rs2.4 trillion restructuring plan, with repayments being serviced through a Debt Service Surcharge (DSS) of Rs3.23 per kWh.
Recovery, Losses and Fuel Mix
DISCOs’ recovery rate, which stood at 90 percent as of June 30, 2024, is projected to improve to 97.34 percent by June 2027 — higher than the earlier 95 percent target.
Transmission and Distribution (T&D) losses, recorded at 18.3 percent in June 2024, were targeted to fall to 14 percent by June 2027. However, revised estimates suggest losses may only decline to 14.7 percent.
The share of imported fuel in the generation mix is expected to drop from 24.2 percent in 2024-25 to 20.5 percent, helping reduce vulnerability to global fuel price volatility.
Subsidy Rationalisation and Social Protection
Total power subsidies, earlier projected at Rs1.1 trillion by June 2027, have now been revised downward to Rs936 billion.
Sources said the government plans to eliminate the Tariff Differential Subsidy from June 1, 2027, following completion of data matching for beneficiaries under the Benazir Income Support Programme (BISP). However, consensus has yet to be reached on implementing a voucher-based subsidy scheme.
The Power Division and Poverty Alleviation and Social Safety (PASS) authorities are expected to jointly design a targeted subsidy framework for approximately 16.5 million consumers by June 2027.
Capacity Utilisation and Industrial Demand
Average available generation capacity utilisation is projected to increase from 52 percent in June 2024 to 58 percent by June 2027.
Officials are also expected to raise the issue of a proposed three-year incremental (subsidy-neutral) package with the IMF to resolve discrepancies and make the tariff structure more consumption-friendly. The package was prepared in collaboration with the World Bank.
Business leaders have repeatedly argued that the primary driver of rising electricity consumption is the shift of industry from captive power generation to the national grid. While government officials acknowledge that the incremental package has not delivered expected results, power generation reportedly rose by 14 percent in January 2026 compared to the same month in 2025.
The proposed tariff rationalisation and subsidy reforms form part of broader efforts to stabilise the power sector, reduce fiscal pressures and improve long-term sustainability.
Story by Mushtaq Ghumman
