ISLAMABAD: Prime Minister Shehbaz Sharif has directed Power Division to cut electricity tariffs by Rs 7 per unit for all consumer categories, including the industrial sector across the country including Karachi , following due consultations with the International Monetary Fund (IMF). An IMF team is expected to visit Islamabad next month,
Sources told Business Recorder that the plan unveiled last week when Prime Minister Shehbaz Sharif decided to expand the “Tariff Reduction Committee,” led by Deputy Prime Minister/ Foreign Minister Senator Ishaq Dar.
The committee will now also have Lt General Muhammad Zafar Iqbal, the National Coordinator of the Task Force on Energy, a key man in renegotiating agreements with Independent Power Producers (IPPs); financial benefit of which has been calculated at Rs 1.4 trillion over the life of the projects. The annual saving is estimated to be Rs 137 billion.
PM orders reduction in power tariffs
The government has also decided to withdraw proceedings initiated by Nepra against IPPs for abnormal profits/ excess savings in fuel and O&M and terminate IPPs and termination of M/s PakGen Power against inclusion of KAPCO in national grid.
The estimated annual savings in capacity payments were projected at Rs. 67.51 billion (including three IPPs pending for negotiations as highlighted in the summary) contributing to a cumulative reduction in future capacity payments and related obligations, totalling Rs. 813 billion that would settle circular debt of an estimated amount of Rs. 329 billion.
The new committee’s line-up will also feature key figures such as Muhammad Ali, Special Assistant to the Prime Minister on Power, and Ali Pervaiz Malik, the Minister of State for Finance. A fresh notification outlining these changes has already been issued.
Previously, the committee was composed of various ministers including the Minister for Economic Affairs, Ahad Khan Cheema, Finance Minister Senator Muhammad Aurangzeb, Power Minister Awais Leghari, and other senior officials from the Power, Petroleum, and Finance Ministries.
Sources indicate that the Prime Minister emphasised the importance of tariff reductions to stimulate economic growth, urging the committee to refine and finalise proposals that will benefit the domestic industrial sector.
“The committee is carefully assessing the tariff reduction plan to determine how much relief can be given per unit to enhance the competitiveness of local industries. This includes consultations with the provinces, and the final plan is expected to be ready by February 10, 2025, with implementation slated for April 1, 2025,” sources quoted the Prime Minister as saying.
As part of the strategy, it is expected that the government will secure Rs 2.0 per unit relief from revised agreements with IPPs, an additional Rs 3 per unit from the removal of federal and provincial taxes totalling about Rs 290 billion, and further reductions from lowering the Return on Equity (RoE) for government-owned power projects, including provincial ones. The financial burden of taxes on electricity bills currently stands at Rs 9 per unit.
However, the Finance Division, responsible for managing commitments with the IMF, has expressed concerns that eliminating these taxes could impact the government’s fiscal targets, including tax revenue collection and overall fiscal balance, as outlined under the Extended Fund Facility (EFF). The total impact of taxes on consumers’ electricity bills is estimated at Rs 964 billion, with Rs 391 billion attributed to the federal share and Rs 563 billion to the provinces.
Among the tax components, sales tax contributes Rs 708 billion, income tax accounts for Rs 98 billion and several other charges add to the total.
Prime Minister Shehbaz Sharif has directed the Power Division to move forward with the proposed Rs 7 per unit tariff reduction, which is expected to provide a significant relief to consumers.
An official stated that around 40% of electricity bills are composed of taxes and surcharges, most of which are collected by the Federal Board of Revenue (FBR). The removal of these taxes could lead to a 40% reduction in electricity bills.
During a recent cabinet meeting, the Prime Minister shared the progress of the Task Force on Structural Reforms in the Power Sector, praising their successful negotiations to amend contracts with major power companies.
He reaffirmed his commitment to reducing the per-unit cost of power by Rs 7, in line with the government’s upcoming announcement, and expressed confidence that this would be finalised before April 2025 in coordination with the IMF.
Copyright Business Recorder, 2025
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