Over the past year, power tariffs in Pakistan have come down considerably and, contingent on key reforms being implemented over the next five years, are on their way to becoming “normal” by global standards.

As highlighted in a recent IEA report, power tariffs in Pakistan are almost twice as high as in most of the world. Behind this are a multitude of reasons, ranging from a high share of stranded capacity, high technical and commercial losses, cross subsidies and other economic distortions that have kept power tariffs prohibitively high and subdued demand, contributing to a utility death spiral, and most recently a solar boom that threatens the viability of the national grid.

While power tariffs have been brought down significantly over the past two years, it’s important to point out that they’re back around the pre-crisis levels of 2021-22 which were not very competitive to begin with. They spiralled from around 10-12 cents/kWh to 16-17 cents/kWh in the wake of the economic crisis of 2022-23; as the economy has adjusted some demand has recovered (though still below 2020-21), while international developments have also kept fuel prices at a low. Hence, the reduction in power tariffs has been brought about by a combination factors, including economic recovery, and a targeted subsidy with sunset clause.

The only “structural” or long-term sustainable change has been the termination and renegotiation of 1992/2002 policy IPP contracts, which brought about a relief of Rs 16 billion and Rs 17 billion in the third quarter of FY25. This translates into an annual reduction of around Rs 120 billion in total capacity charges of Rs 2.27 trillion (based on FY25 Power Purchase Price determination)—an impact of negative Rs 0.92/kWh in the average power purchase price.

Some relief is also planned to be financed through the Grid Transition Levy on captive power plants, though it’s unclear how the government expects to raise funds from the captive levy while simultaneously shifting them to the grid and “eliminating captive power usage from the gas sector” in IMF agreement lingo. Except little to no relief from this front, especially as captive gas consumption was down by ~90 percent YoY in April 2025.

The reduction brought about by negative QTAs over last few quarters, primarily through the IPP termination/renegotiation and CPP transition, will be embedded into the base tariff as part of cost and demand projections for next year. Considering these factors, and the CPPA Power Purchase Price projections, which range between Rs 24.75-26.70/kWh compared and Rs 27/kWh for FY25, it is safe to assume that power tariffs will be rebased to around where they are at present.

Considering all these dynamics, any further reduction in power tariffs beyond current levels is unlikely without systemic overhauls. The good news is that the IMF Staff Report outlines a few such corrections that........

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