The reduction in the power tariff, especially for industrial consumers, is a welcome move. Its architects, including the caretakers’ team, must be credited for it. However, this is a small win, and the objective should be to have a bigger plan geared toward increasing the share of electrification — which is a cleaner and more efficient source — within final energy consumption.
To achieve this in the medium to long term, the implications on the fiscal side, supply chain, and other factors need to be carefully evaluated, and reforms within these are a must. There are many moving parts, and tariff is one part of the larger scheme to fix. The need is to bring all the energy puzzles into place.
According to Pakistan Energy Book data, in FY23, out of the total final energy consumption, electricity at 9.3 million TOEs (tons of oil equivalent) was a mere 20 percent of total use at 45.7 million TOEs. The lion’s share is with transportation (35 percent) and gas (31 percent).
And within transportation, 91 percent is consumed by oil, while electricity is zero (as E-tron and the like are rounding-off errors). Then in gas final energy consumption, 51 percent is used by households (mainly in stoves and space heating), while 41 percent is by industry (including captive users).
There is a huge potential to convert chunks of transportation (mainly 2-3 wheelers) and both industrial and domestic consumers toward electrification. Providing electricity at affordable rates is essential — and a reduction of Rs4.5–5.5/unit for industry (excluding taxes) and over Rs7/unit for domestic users would surely lure marginal consumers toward the grid.
However, without solving other parts of the puzzle, the gains would be limited. Industry needs reliability of the grid and stability in policy. The price decline is mainly for three months — be it TDS (tariff differential subsidy) by charging higher PL (petroleum levy), QTA (quarterly tariff adjustment), or FCA (fuel cost adjustment). It is expected that some of these will become part of next year’s base tariff, and others will roll over.
Some industrial players must install infrastructure to connect to the grid. They need policy continuity to do so. And it is certainly required for new industrial investment.
The other issue (mainly for XDISCOs — minus KE consumers) is grid reliability. In many Punjab DISCOs, the grid is overloaded, resulting in frequent tripping — mainly in summer months.
That is a deal-breaker — especially for continuous process players. The grid load is over 100 percent and badly needs upgrading. This must be done, and for that, corporatization (and preferably privatization) of DISCOs — such as LESCO, FESCO, and MEPCO — is a must.
Apart from this supply chain problem, the other is what to do with the surplus gas when captive players move to the grid. The math is adding up — captive is becoming exuberantly expensive while grid power is getting cheaper.
The delta is growing. Gas is expected to be in surplus for sure. Already, domestic gas production is curtailed to consume must-buy RLNG from Qatar. We need to revise the contracts. Currently, we must buy 9 cargos a month from Qatar under two contracts.
The price opening of both is in early 2026, and in one contract, Pakistan can walk away upon non-agreement. The government should start consulting the Qataris soon and ideally reduce the purchase to 5 cargos a month.
The country has two RLNG terminals, and one’s contract is ending. Its principal is asking for renewal and threatening that its foreign partner will leave for good if the contract is not renewed. The government should not entertain it and should exercise its buyback option. If the country needs gas in the future, there will be more supply, as Russia is likely to open.
The other big area is transportation. It consumes one-third of final energy consumption. It is the biggest head in imports and one of the top contributors to deteriorating air quality in urban centers.
Converting it to electrification can improve the urban environment and lower the import bill, as the share of indigenous fuel and renewables in electricity production capacity is increasing.
Capacities are being added. The marginal cost (such as for nuclear and renewables) is almost zero. And the solar revolution has just started. The fall in battery prices is set to change the equation soon.
It’s a matter of time before a big shift in transportation to EVs takes place. However, consequently, tax collection on petrol and diesel will take a hit due to lower consumption. Then lower power tariffs will proportionally reduce tax from electricity bills. These fiscal challenges need to be addressed by broadening taxation.
The government should work on these medium-term solutions. However, the immediate threat is how to enhance industrial consumption when the US has started a tariff war in the world. The outcome is unclear in the medium term. However, that disruption is likely to lower global trade in the short term. That poses a challenge to the initial rise in grid consumption, which fell below 7,000 MW in daytime during Eid holidays.
Copyright Business Recorder, 2025
Ali Khizar is the Director of Research at Business Recorder. His Twitter handle is @AliKhizar
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