The way power tariffs are determined in Pakistan is not fundamentally different from that of other regional countries. While there may be subtle variations in how electricity is sold, purchased, and generated, the overall pricing structure follows similar principles.
That said; Pakistan’s tariff-setting process includes additional layers of complexity, where electricity is used not just as a utility but as a tool for subsidies and taxation. Power, a basic necessity, is often treated as an indicator of income, becoming an avenue for indirect taxation based on one flawed assumption: if you use more electricity, you must be wealthy. This is counterintuitive—especially when the government is trying to promote greater consumption on the national grid.
The system becomes even more cumbersome because, except for K-Electric (KE), all other DISCOs (distribution companies) are allowed to park their inefficiencies in a holding company. The cost is then passed on to all consumers via a surcharge—one that even Karachi’s consumers pay, despite having no role in the circular debt. These inefficiencies of XDISCOs are permanently embedded in bills through the PHL surcharge. There is no logical or transparent justification from regulators or government authorities for imposing this.
Why this is done is anyone’s guess. The reality is that the government often avoids mobilizing its formal tax machinery, instead using entities like DISCOs as collection agents for revenues under the guise of power bills. This only makes electricity pricing more convoluted and volatile.
The volatility arises from the government's approach of using power bills as instruments for subsidy disbursement, revenue collection, taxation, identifying tax return filers, and even informal income audits. As a result, electricity bills fluctuate unpredictably. This creates serious hurdles for businesses, making it difficult to plan expansions or launch new ventures, since electricity tariffs are constantly at the mercy of ever-changing government policies.
Yes, some cost factors are beyond the government’s control—such as global oil, gas, and coal prices. With rising geopolitical tensions, these variables have become more volatile in recent years. First it was COVID, then the Ukraine war, followed by instability in the Middle East. Now the world must also contend with the implications of Trump’s new tariffs, and the recent India–Pakistan escalation has added another layer of uncertainty.
Still, the government must reduce this uncertainty by developing a simpler, more predictable electricity pricing mechanism. It must stop using power bills to tax the informal sector, especially when such measures also burden the formal sector heavily. Every stakeholder has a role to play in communicating and clarifying tariffs, but the responsibility to simplify lies primarily with the government and NEPRA. Electricity pricing should no longer serve as a tool for taxation or subsidy manipulation. It is stifling economic growth and constraining business activity.
Energy already makes up a significant portion of overall business costs. Continuously complicating the tariff structure, shifting incentives, and revising prices every month or quarter imposes an additional burden. The presence of intra-category differentiation, variable cost components, cross-subsidies, and multiple taxes (sales tax, advance tax, PHL surcharge), combined with new rooftop solar adjustments, has made the system nearly indecipherable. No analyst can accurately forecast energy costs. Even artificial intelligence might struggle to calculate Pakistan’s power tariffs—it is a futile exercise.
One final point: the current tariff structure was originally designed to discourage incremental consumption, as demand once exceeded supply. That is no longer the case. Yet the structure remains unchanged and unsuited to modern-day challenges. It fails to serve the needs of the government, regulators, or electricity consumers.
It’s time to think differently.
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