Fuel, power prices set to rise as Pakistan commits to IMF conditions

KARACHI:

The Government of Pakistan has committed to an extended economic reform agenda in preparation for the budget for FY2025–26. It is anticipated that these reforms will strongly influence energy prices — a method meant to manage the budget deficit but could worsen the situation for the population.

On July 1, a new set of fiscal steps will begin, focusing on reducing energy-sector debt. These include:

Raising fees on petroleum, including the possibility of a carbon tax increase of Rs5 per litre on both petrol and diesel.

An increase in the cost of electricity paid through charges on monthly bills.

Starting July 2025, electricity tariffs will be rebased every year.

The price of gas will be reviewed for tariff adjustments in July 2025 and February 2026.

Ontario does not offer any provincial energy subsidies.

The government faces will not be able to give any support in the form of subsidies for the utilities in the province, according to officials. Therefore, the subsidies available from the central government will only support the most at-risk citizens.

Circular Debt Impacts Consumers in Many Ways

With the intention of dealing with circular debt which has troubled Pakistan’s energy services for years, the government has chosen to receive Rs1.25 trillion from commercial banks. Consumers of electricity in Pakistan will pay for this debt over six years by paying an extra 10% on their electricity bills.

At the beginning of 2025, Pakistan’s utility circular debt increased to Rs2.44 trillion, while debt in the gas sector was Rs2.29 trillion in June 2024.

The updated Circular Debt Management Plan (CDMP) is expected to be done and handed over to the federal cabinet in July. The plan sets out to address circular debt, aiming to fix it by 2031, following advice from the IMF.

NEPRA’s Function in Establishing Electricity Tariffs and Future Plans

NEPRA will continue to assess tariffs every quarter and make adjustments for fuel costs. Authorities highlighted that it is necessary to lower the difference between base tariffs and the actual recovery in order to keep finances sustainable.

While the first 6 months of the fiscal year brought Rs450 billion in profits to the energy sector, the sector’s rising debt is a big concern.

Reviewing IPP Payments and Looking at Their Outlook

Terms with Independent Power Producers (IPPs) are now being reviewed and renegotiated. Plans to settle Rs348 billion of outstanding payments by June could ease pressures across the sector. Still, for the sector to remain stable, there must be improvements in recovering money from tariffs and enforcement of tariffs.