ISLAMABAD: Facing requests for a 25% annual tariff increase, the government on Thursday signaled plans to introduce an incentive package for the industrial sector as part of broader power sector reforms aimed at reviving electricity demand and fostering economic growth.
This development emerged during a public hearing led by National Electric Power Regulatory Authority (Nepra) Chairman Waseem Mukhtar. Representatives from various industrial and consumer groups, particularly from Karachi, expressed concern over the proposed tariff hike, citing its potential to exacerbate economic strain.
The hearing focused on a proposed 25% increase in the power purchase price (PPP) for national electricity tariff rebasing, effective from July 1, 2025, to meet the power companies’ revenue requirement of approximately Rs4 trillion for FY25. The Central Power Purchasing Agency (CPPA) presented seven scenarios, forecasting an annual average tariff increase of Rs4.40 to Rs6.51 per unit.
During the hearing, CPPA and Power System Operator representatives explained the necessity of the tariff rebasing, mentioning that the government is considering various reform measures, including an incentive package to stimulate power demand, which saw only a 1% increase in the current fiscal year. They hinted that a special industrial tariff might be introduced to address the cross-subsidy issue, which cost the industry about Rs434 billion this fiscal year.
Chairman Mukhtar emphasized the importance of realistic tariff rebasing to minimize subsequent price shocks. Industrial representatives from the Karachi Chamber of Commerce and Industry and the Korangi Association of Trade and Industry lamented the high energy costs, stating that these were hurting electricity demand and industrial activity due to reduced consumer purchasing power. They argued that the industry should not subsidize other consumer categories and should be charged only the actual average tariff.
Additionally, it was reported that despite claims of over 6000MW of solar panel imports, the net-metered capacity is just 1900MW, with a significant portion of solarization occurring off-grid. The CPPA projected a sale of 131,000 to 139,000 gigawatt hours (GWh) of electricity for FY25, with demand growth estimated at 3-5% based on a 3.5% GDP growth rate forecast by the IMF.
The proposed PPP increase ranges from Rs4.40 to Rs6.50 per unit, with the CPPA seeking an average increase of Rs6.80 per unit, translating to a 25% rise based on an annual revenue requirement of Rs3.6 trillion. The projected average sale rate for next year is Rs37 per unit, up from Rs29.78 per unit this year, primarily driven by a significant rise in the energy purchase price (EPP) and capacity payment price (CPP).
The exchange rate for the next fiscal year is assumed to be between Rs275 and Rs300 per dollar, with local inflation at 12.20% and US inflation at 2.4%. The Karachi interbank offered rate (Kibor) is projected at 21.37%, and the London interbank offered rate (Libor) at 5.3%.
Story by Khaleeq Kiani
