Bold Move to Slash Electricity Rates: Big Relief for Consumers & Industries

Prime Minister Shehbaz Sharif has ordered the Power Division to slash electricity tariffs by Rs 7 per unit across the board, including for industrial consumers, following talks with the International Monetary Fund (IMF). This move comes ahead of an anticipated IMF visit to Islamabad next month.

According to reports, the government’s plan for this tariff reduction includes Rs 2 per unit savings through renegotiating agreements with Independent Power Producers (IPPs), Rs 3 per unit relief from eliminating federal and provincial taxes, and further savings by lowering the Return on Equity (RoE) for state-run power projects.

Currently, taxes and surcharges make up roughly Rs 9 per unit of the electricity bill, contributing to a massive annual tax load of Rs 964 billion.

Despite the potential benefits, the Finance Division has expressed concern that removing these taxes might throw off the fiscal targets set under Pakistan’s agreement with the IMF. Of the total tax burden, Rs 391 billion comes from federal taxes, while Rs 563 billion is from provincial taxes. Sales tax alone contributes Rs 708 billion, with income tax accounting for Rs 98 billion.

By removing taxes, officials anticipate reducing electricity bills by as much as 40%, providing significant financial relief to consumers and businesses alike. Prime Minister Sharif is optimistic that the plan will be smoothly executed with IMF cooperation.

At a recent cabinet meeting, Sharif commended the Task Force on Structural Reforms in the Power Sector for its work in renegotiating contracts with major power companies. He reiterated his commitment to finalizing the tariff cut plan by April 2025, offering much-needed relief to consumers and boosting the competitiveness of local industries.

The Prime Minister has also expanded the “Tariff Reduction Committee,” bringing Lt General Muhammad Zafar Iqbal, National Coordinator of the Task Force on Energy, into the fold. His leadership in renegotiating IPP agreements is projected to save Rs 1.4 trillion over the lifespan of the projects, with Rs 137 billion in annual savings.

Furthermore, the government has opted to halt the National Electric Power Regulatory Authority (Nepra) proceedings against IPPs, which were investigating abnormal profits and excessive operational savings. This decision is expected to save Rs 67.51 billion annually in capacity payments and help reduce circular debt by Rs 329 billion.

The committee, led by Deputy Prime Minister Ishaq Dar, includes prominent figures like Muhammad Ali, Special Assistant to the Prime Minister on Power, and Ali Pervaiz Malik, Minister of State for Finance. A finalized plan is expected by February 10, with the implementation date set for April 1, 2025