ISLAMABAD   -  The electricity tariff in Pakistan is projected to increase by 38 per cent while the capacity charges to the power producers by 62 per cent during FY 2024-25 as compared to the previous fiscal year.

The speakers at a panel discussion underscored that Pakistan is facing an overall increase of 38 per cent in energy prices along with a 62 per cent rise in capacity charges leading to tariff hikes in the country that could be overcome through an independent power consumer model promoting individual power generation.

A panel discussion on Pakistan’s electricity tariff structure: insights and key determinants, organized by Sustainable Development Policy Institute (SDPI) under the auspices of the Network for Clean Energy Transition (NCET) here.

Dr. Khalid Waleed, Research Fellow at SDPI, detailed Pakistan’s consumer categories and tariff-setting mechanisms, highlighting how the tariff structure is designed to reflect various consumer types and usage patterns.

He said that residential consumers, classified under category A-1, make up 89% of the consumer base and account for 48% of the total consumption. This trend is opposite to the global pattern where industries are the main consumers of electricity. In Pakistan, however, commercial consumers (A-2) represent 9% of the consumers and 7% of the consumption.

He further explained the mechanism behind the high electricity bills. In Pakistan, the capacity charge, encompassing fixed operational and maintenance costs, return on equity, debt servicing, insurance, working capital financing fees, and procurement and construction costs, is higher than the generation charge. The Energy Price (EP), which includes fuel cost and variable operational and maintenance expenses, is projected to increase from Rs 0.84 trillion in FY24 to Rs 1.16 trillion in FY25, translating to a rise from Rs 10.94/unit to Rs 15.65/unit. The capacity payments (CP) is anticipated to grow from Rs 1.847 trillion in FY24 to Rs 1.95 trillion in FY25, contributing to Rs 18.39/unit or 60% of the overall power tariff.

Another reason for the increased electricity bills is the various taxes imposed. He explained that in Pakistan, electricity bills include several taxes, including an 18% General Sales Tax (GST) from the federal government and an Electricity Duty from provincial governments of 1.5% for residential customers and 2% for commercial customers, he maintained.

“Various strategies can be employed to effectively address the issue, such as removing the six-month criteria for protected consumers, promoting innovative financial solutions, simplifying the SLAB mechanism, and, most importantly, advocating for region-wise competitive tariffs and improving service quality,” he suggested.

Dr. Musarat Jabeen highlighted the concept of the independent power consumer (IPC) model, advocating for solar energy initiatives and encouraging everyone to generate their own energy to promote sustainability. She emphasized the need to formulate new policies tailored to our specific needs and challenges.

Engr Ahad Nazir, highlighted that all energy-generating plants are paying fixed tariffs regardless of production and output, which eliminates the incentive to compete, whereas capacity payments and the dollar index are the main causes of such high prices.

He presented three models: cost-reflective tariffs, subsidy-targeted tariffs, and decentralized tariff settings, which are international best practices adopted to tackle major crises and maintain costs.

Another participant Zainab Babar said that several key issues in the current system, such as the burden of high-capacity payments and dollar indexation, make electricity unaffordable for many consumers. Additionally, the significant fluctuations in electricity demand between summer and winter necessitate a more dynamic approach to tariff setting. The existing tariff structure also lacks incentives for energy-efficient practices among consumers.