ISLAMABAD: The federal government has reduced power sector subsidies by around 19 percent to Rs830 billion for FY2026-27, down from Rs1.036 trillion in the previous fiscal year, according to budget documents.
For FY2025-26, the subsidy allocation was later revised downward to Rs893.136 billion, reflecting ongoing fiscal consolidation efforts in the energy sector.
Overall, total subsidies have declined by 8 percent to Rs1.091 trillion in FY2026-27, compared to Rs1.186 trillion in the current fiscal year.
Key Changes in Power Sector Subsidies
The allocation for Inter-Disco tariff differential subsidy has been slightly reduced to Rs248 billion, compared to Rs249.135 billion last year.
Subsidies for agricultural tubewells in Balochistan have been cut to Rs3 billion from Rs4 billion, while support for the merged districts of Khyber Pakhtunkhwa (former FATA) has declined by 15 percent to Rs34 billion.
In contrast, subsidies for Azad Jammu and Kashmir (AJK) have increased by 9.5 percent to Rs81 billion, up from Rs74 billion in FY2025-26.
The allocation under the Pakistan Energy Revolving Fund (PERA) remains unchanged at Rs48 billion, intended to support monthly payments of Rs5 billion to Chinese Independent Power Producers (IPPs) established under CPEC.
K-Electric Subsidy Increased
A notable increase has been recorded in the subsidy for K-Electric, which has risen by more than 30 percent to Rs163 billion, compared to Rs125 billion in the previous year.
Meanwhile, Rs1 billion has been allocated for Balochistan’s agricultural tubewells, unchanged from last year.
IPP Payments and Circular Debt Management
Significantly, the budget makes no direct allocation for IPP payments in FY2026-27, despite Rs95 billion being earmarked in the previous year (later revised to Rs200 billion).
Instead, the government has introduced a new allocation of Rs252 billion for circular debt containment, marking a shift in strategy for managing power sector liabilities.
End of Lump-Sum Subsidies
The government has discontinued broad lump-sum subsidy allocations. In FY2025-26, Rs400 billion was initially allocated under this head, later revised to Rs152 billion.
Similarly, no subsidy has been allocated for petroleum products, compared to Rs1.183 trillion (revised) in the previous year, citing reduced reliance on guaranteed throughput for PEPCO.
Likewise, there is no allocation for RLNG supply to industry, which previously stood at Rs17 billion.
Agricultural and Commodity Support
For the Pakistan Agricultural Storage and Services Corporation (PASSCO), Rs19 billion has been allocated for wheat reserves, covering stock maintenance and price differential support.
Subsidies under the Industries and Production Division have increased to Rs37 billion, up from Rs24 billion. This includes:
- Rs8 billion for electric vehicle incentives
- Rs5.8 billion for urea fertilizer production and supply
The Utility Stores Corporation (USC) has been allocated Rs23 billion, although no funds have been provided for sugar subsidy arrears.
Other Subsidy Adjustments
Under “other subsidies,” the allocation stands at Rs205 billion, compared to Rs230.478 billion in the revised estimates.
Key allocations include:
- Rs15 billion for wheat subsidy to Gilgit-Baltistan (down from Rs20 billion)
- Rs10 billion for urea imports (down from Rs15 billion)
- Rs5 billion each for Mera Pakistan Mera Ghar, farm mechanization, and Kissan package initiatives
- Rs1 billion for SME Asaan Finance scheme
- Rs2 billion for SME financing
- Rs1 billion for gas supply schemes within 5 km radius
- Rs5 billion for Metro Bus subsidy (down from Rs7.3 billion)
- Rs71 billion for the Prime Minister’s Apna Ghar Programme
- Rs1 billion for miscellaneous subsidies
A sharp rise has been recorded in markup subsidies, which surged to Rs88 billion, up from Rs30 billion last year — an increase of 195 percent, driven by the phase-out of SBP refinancing schemes.
Story by Mushtaq Ghumman
