KARACHI/SINGAPORE: Pakistan’s new power price proposals will increase inflation and shift the International Monetary Fund-mandated (IMF) subsidy cuts onto middle-class households while easing pain for industries, analysts say.
The plan, ending a system where businesses subsidised household energy bills, could trigger a 1.1 percentage point jump in inflation over 12 months, Optimus Capital Management said.
Analysts say the plan, which only needs formal approval to come into effect, will cause industrial prices to fall between 13 percent and 15 percent and remove 102 billion ($365 million) rupees in subsidies.
That means middle-class households will have to pay roughly 50 percent more for power, the analysts estimated.
INFLATION BACKDROP
Pakistan endured one of Asia’s highest inflation spikes in 2023, nearing 40 percent, driven by a weakening rupee, rising fuel costs and price hikes linked to IMF-backed reforms.
Although inflation has since slowed to 5.8 percent, analysts warn the changes to power prices could add inflationary pressure.
Pakistan’s power ministry and the IMF did not respond to a request for comment.
Ahtasam Ahmad, Energy Finance Program Lead at consultancy Renewables First, said that because purchasing power for the average household had significantly declined, the change “adds to the compounding effect of inflation which we have experienced post-2022.”
The pricing overhaul underscores tensions within Pakistan’s IMF program, which has mandated steep utility price hikes since 2023 to support struggling state power firms.
Industrial groups say high prices erode export competitiveness in textiles and manufacturing.
Consumers using between 100 and 300 units of power monthly — representing a majority of paying residential users — will face rate increases of up to 76 percent due to new fixed charges under the pricing overhaul, according to Arzachel, a Karachi-based energy consultancy.
The lowest-income households using 1-100 units monthly will see fixed charges jump to PKR 400 from zero, the National Electric Power Regulatory Authority (NEPRA) said on Monday.
SOLAR PRICING IN QUESTION
The regulator has also cut the rate paid to rooftop solar users exporting power to the grid, replacing a system that previously valued supplied and purchased electricity equally.
A record surge in solar installations has cut emissions and lowered bills for some households but squeezed revenues at debt-laden utilities as demand for grid power declines.
Prime Minister Shehbaz Sharif on Wednesday ordered a review of NEPRA’s solar changes, directing officials to prevent a transfer of costs from 466,000 solar users to 37.6 million grid consumers.
