Rethinking the incremental electricity package

The government deserves appreciation for recognizing the severe cost pressures faced by industry and for announcing discounted electricity tariff aimed at supporting industrial activity.

Industry has warmly welcomed the announced removal of Cross Subsidy by Rs4.04/unit and appreciated government for acknowledging that high energy prices are hurting competitiveness, investment, and growth is an important and positive step. Without policy intervention, more industries would continue to shut down or produce less, further weakening the power system.

At the same time, it is important to candidly recognise that an earlier policy tool, the incremental electricity consumption package, has not produced the intended results and now requires urgent correction.

Pakistan’s power sector carries very high fixed costs in the form of capacity payments and system charges. If electricity sales do not increase, these fixed costs are spread over fewer units, pushing tariffs higher for everyone. Encouraging industries to consume more electricity from the grid is therefore necessary. However, such incentives only work if the increase in demand is real and verifiable.

System data shows that national electricity demand remained broadly stable from May 2025 onward, averaging around 2,400 to 2,500 GWh per month. In November 2025, sales were approximately 2,439 GWh, and in December 2025 they were about 2,431 GWh. In simple terms, there was no meaningful increase in demand in December.

Despite this, around 600 GWh of electricity in December 2025 was billed under the incremental package at a discount of Rs 11.02 per unit, using December 2023 consumption of about 1,900 GWh as the reference point. That reference had already become outdated because demand levels had shifted upward but only due to captive forced switching to grid. As a result, existing base-load consumption was treated as incremental, and electricity that would normally have been sold at the full tariff was sold at a reduced price. It may be safely concluded that captive drove the net increase in demand from May 2025; no other reason can be justified. It was also noted that B2 users despite being 84000 in number benefitted just Rs 60 million out of Rs 1.53 billion which was majorly distributed in B3 and B4 users as per data produced in a Nepra hearing.

The financial impact of this design flaw is clear. Approximately Rs 1.53 billion in benefit was provided to a limited group of consumers, while the resulting revenue shortfall was around Rs 6.6 billion. This shortfall did not reduce capacity payments, did not increase system utilization, and did not create additional demand. Instead, it flowed into quarterly tariff adjustments and is being recovered from all electricity consumers across the country.

Had this Rs 6.6 billion loss not occurred, the quarterly adjustment would have been lower by roughly Re 0.23 per unit. Instead of about Re 0.38 per unit, consumers would have faced closer to Re 0.15 per unit. This shows that more than half of the quarterly tariff impact was policy-induced rather than the result of unavoidable system costs.

This is not merely a one-month issue. If a distortion of this magnitude continues, it can translate into an additional burden of Rs 60 billion or more over a year, paid by households, small businesses, and industries that received no benefit from the package. It is therefore reasonable to ask why, despite the flaw being visible, documented, and quantifiable, it has not been corrected.

The underlying issue is not lack of industrial capacity, but how demand is measured and incentivised. While sanctioned industrial load is high, actual utilisation is low. Even when measured properly using Maximum Demand Indicator data, average industrial load factors remain around one-third. Policies based on sanctioned load or outdated reference periods fail to reflect real industrial behaviour and risk misclassifying normal consumption as growth.

The intent behind supporting industry through electricity discounts is correct and deserves recognition. However, the existing incremental consumption framework needs refinement so that it rewards genuine increases in demand rather than re-pricing existing consumption. Using recent and realistic reference periods, benchmarking against actual consumption, verifying net system growth, and consulting industry before extending or redesigning such packages would go a long way in fixing the problem.

Correcting the incremental package now would reduce quarterly adjustments, protect consumers, and help achieve the policy’s original objective of higher grid utilisation and more stable tariffs. Good policy is not about avoiding mistakes altogether, but about recognising them early and fixing them before their cost quietly multiplies across the entire system.

Copyright Business Recorder, 2026