In the wake of the recent IMF agreement, Pakistan has introduced a new policy aimed at transitioning industries from captive generation to grid-based power supply. This shift is being driven by increased gas connection prices for captive power plants and the imposition of additional surcharges.
While the policy is designed to enhance grid utilization and address systemic inefficiencies, it raises critical concerns for industries.
The fundamental question remains: why would businesses make substantial upfront investments in high-voltage and medium-voltage grid connections when there are no tangible financial benefits? Without a well-structured incentive framework and a rationalized tariff structure, industrial consumers find little justification for embracing this transition.
By definition, policy serves as a broad and goal-oriented statement, setting standards and expectations to guide actions within public and economic sectors. It represents an outcome-based commitment endorsed by authorities, consisting of interconnected decisions and actions that allocate resources and define values.
Policymaking inherently involves trade-offs, yet these compromises are rarely made on equal terms at the same time.
As a result, policy decisions often create winners and losers. The science-policy interface, the critical interaction between scientific research and policymaking, has long been absent in Pakistan’s energy policies.
The country has seen a pattern of short-term, reactionary decisions, as demonstrated by the promotion of CNG stations followed by gas shortages, and later the widespread adoption of captive power plants, which are now being phased out in favour of grid connections. If consumer behavior is to be shifted effectively, the right incentives must be introduced to encourage voluntary adoption rather than forced compliance.
Pakistan’s tariff classification system, as outlined in the NEPRA Consumer Service Manual and Consumer End Tariff Notifications, categorizes industrial consumers based on their load and connection voltage. Consumers with loads between 25 kW and 500 kW, connected at 400 volts (low voltage), fall under the B-2 tariff. Those with loads up to 5,000 kW, connected at 11kV (medium voltage), are classified under B-3, which is extendable to 7.5 MW.
Larger industrial consumers, connected at 132kV (high voltage), are categorized under B-4, with no load size limitations. While this classification is intended to align tariffs with infrastructure and capacity needs, a glaring disconnect exists between technical categories and financial incentives.
A fundamental issue is the misalignment of tariffs, where B-3 and B-4 consumers face higher rates than B-2 consumers despite imposing a lower burden on the grid. Large-scale B-4 consumers operate their own grid stations and bear all operation and maintenance (O&M) costs, including those for 132/11kV transformers and associated energy losses, effectively reducing the load on distribution companies (Discos).
Similarly, B-3 consumers manage their own substations, though they do not maintain grid-level infrastructure. In contrast, B-2 consumers rely entirely on DISCOs for O&M, contributing to the highest levels of transmission and distribution (T&D) losses. Despite these operational realities, the current tariff structure disproportionately favors B-2 consumers, dis-incentivizing investment in higher-voltage infrastructure.
The inefficiencies of Pakistan’s power sector become even more apparent when analyzing T&D losses across different voltage levels. At the 220kV level, average losses are around 3%, including the entire 500kV network. Losses increase to 5% at 132kV, rise further to 9% at 11kV, and peak at 15% at the 400-volt low-voltage level.
Similarly, the cost of wheeling electricity—essentially the network cost—rises as voltage levels decrease. At 220kV, the network cost is approximately 1.54 PKR per unit, increasing to 2.7 PKR per unit at 132kV and reaching 4.7 PKR per unit at 11kV.
However, these cost disparities are not reflected in consumer-end tariff structures, leading to a significant misalignment that discourages industries from transitioning to grid power.
Globally, countries like India and Bangladesh have adopted tariff structures that incentivize efficiency by offering lower rates for higher-voltage connections. In contrast, Pakistan has continued a model of cross-subsidization that makes grid power more expensive for industrial and bulk consumers. To rectify this, B-4 tariffs must be at least 4–5 PKR per unit lower than B-3 tariffs, while B-3 tariffs should be reduced by 2–2.5 PKR per unit relative to B-2 tariffs.
Such adjustments would accurately reflect the reduced cost burden that higher-voltage consumers place on the grid while encouraging industries to invest in long-term grid connectivity.
Industries with continuous processes and large energy demands require a stable and reliable power supply, which is best achieved through high-voltage connections such as 132kV.
However, the current tariff framework fails to offer competitive rates that justify the substantial upfront investment required for grid infrastructure. From a business perspective, investment decisions hinge on the ability to recover costs within a reasonable timeframe, typically between five and ten years.
Without a rationalized tariff structure that allows for a feasible return on investment, transitioning from captive generation to grid power remains economically unviable for industrial consumers.
A comprehensive tariff restructuring is imperative to address these issues. Tariffs must be competitive, fair, and reflective of actual cost differentials across voltage levels. The existing cross-subsidization policies that inflate industrial and bulk tariffs should be revisited to create a more balanced framework.
Additionally, targeted incentives should be introduced to facilitate the shift to grid power. These could include the removal of grid-sharing charges for industries transitioning from captive generation, the establishment of collective grid-sharing options for neighboring industries to distribute infrastructure costs, and the introduction of special Time-of-Use (TOU) tariffs to maximize solar energy utilization during daylight hours.
At the same time, government proposals such as changes in security deposit requirements for DISCOs must be carefully reconsidered as these measures could further deter industries from shifting to grid power.
Instead, a targeted approach, including the introduction of prepaid tariffs in specific sectors or geographic areas, could improve accessibility while ensuring financial sustainability for utilities.
The transition of captive industrial consumers to the national grid represents a significant opportunity to modernize Pakistan’s energy sector, reduce inefficiencies, and promote industrial growth. However, without a well-structured tariff design and meaningful financial incentives, this initiative risks becoming another missed opportunity.
The government must take a decisive action to implement a reformed tariff framework that not only aligns with grid optimization goals but also ensures economic viability for industrial consumers.
Sustainable energy policy must be driven by efficiency, economic rationale, and long-term planning, rather than short-term fiscal adjustments dictated by external financial agreements.
Copyright Business Recorder, 2025
The writer has expertise in the energy sector. His email is: [email protected]
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