Restructuring Pakistan’s power sector: The path to a five-cent tariff

Pakistan’s power sector is locked in a paralyzing paradox: industrial growth is stalling and the general public is groaning under the weight of exorbitant electricity bills.Yet the massive generation infrastructure sits largely idle. A deep-dive analysis of recent data from the Central Power Purchasing Agency (CPPA-G) and the National Electric Power Regulatory Authority (NEPRA) reveals a clear mathematical reality. A highly competitive power generation tariff of Rs13.95 (approx. US¢ 5.00) / kWh is not an impossible dream. This structural overhaul is an administrative necessity that can only be realized through a focused and determined vision.

Resolving Pakistan’s crippling power crisis is fully achievable if we shift the national focus toward asset optimization and smarter grid management. The underlying issues can be highlighted by reclassifying the national energy mix into strategic categories, clean and renewable and indigenous versus imported fuels, a clear roadmap emerges for cost reduction and energy independence.

The Cost Matrix: Curtailing the Crisis Zone

A granular analysis of CPPA-G Energy Purchase data highlights that the generation basket is divided into four distinct cost tiers (1) Clean and Renewable; (2) Indigenous; (3) Import A; and (4) Import B. Crucially, the bulk of the energy is already highly affordable; the real hemorrhage lies at the extreme margins of the system.

Table 1: CPPA-G Generation & Fuel Cost Breakdown

As shown above, clean and indigenous sources cover over 75 percent of total generation at a remarkably low Energy Purchase Price (EPP) of just Rs5.00 (US¢ 1.8) /kWh. Blending this with the manageable “Import-A” category yields a highly reasonable average fuel cost of Rs7.26 (US¢ 2.6) /kWh.

The true crisis lies in “Import-B”. It accounts for less than 6 percent of the total generation but racks up an astronomical average cost of Rs43.55 (US¢ 15.67) /kWh. Aggressively curtailing this minor but toxic fraction of the mix through a strict Economic Merit Order (EMO) is a straightforward task that must be prioritized immediately.

The capacity charge dilemma and the underutilization trap

The second, more pressing issue relates to the Capacity Purchase Price (CPP), the fixed cost paid to power plants to guarantee their availability. While frequently criticized, CPP is an essential cost that covers the capital expenditure of building capacity, which is vital for any growing economy. According to the NEPRA State of the Industry Report, Pakistan paid Rs1.149 trillion for fuel (EPP) but a staggering Rs1.807 trillion for capacity (CPP) in the fiscal year. This translates to a basket EPP of Rs9.04/kWh and a crushing CPP of Rs14.21/kWh.

To understand CPP, think of it as the capital cost of buying a car: the fixed cost of purchasing the vehicle is spread over the kilometers you drive. The more you drive it, the lower the fixed capital cost per kilometer becomes. Similarly, the capacity cost of a power plant which amortizes the capital cost over kWh depends entirely on the volume of power it is allowed to generate.

The inflated CPP is a direct consequence of a severely underutilized system. Based on Pakistan’s total installed capacity of 41,121 MW, the grid possesses a theoretical annual capability to generate 360,220 GWh. Yet, actual annual generation stands at just 135,079 GWh. This equates to a Plant Load Factor (PLF) of just 37.50 percent, nearly half of what a well-managed modern grid should achieve.

In fact, a fleet of just 22,000 MW operating at a 70 percent load factor could comfortably deliver that same 135,079 GWh. Even if we scale that fleet to 25,000 MW to provide a margin of safety for non-dispatchable renewables like solar and wind, it is glaringly evident that the grid is nearly 40 percent over-capacity for the current demand.

If we optimize the system to stimulate industrial demand and achieve a standard modern grid PLF of 75 percent, the financial metrics transform completely.

Table 2: Tariff reduction matrix via plant load factor (PLF) optimization

By doubling the asset utilization to 75 percent, the fixed capacity burden is diluted, causing the CPP to plummet from Rs14.21/kWh to just

Rs6.69/kWh. Combined with the elimination of the expensive “Import-B” fuel category, the final national power generation tariff settles at an incredibly competitive Rs13.95/kWh. At US¢ 5/kWh, Pakistan’s industry would finally have the breathing room to scale, attract foreign direct investment, and compete globally. The generation costs can be seen pictorially in the following graph:

Solving the Summer Peak

Opponents of this model point to Pakistan’s extreme seasonal demand fluctuations, where blistering summers trigger massive demand spikes that vanish during the winter. Planning for peak demand that only lasts for short durations is challenging, but it can be solved without locking the country into new, long-term capacity contracts.

Instead of building new baseload plants, planners must deploy low-capital-cost (CAPEX) peaking options. Fortunately, Pakistan has already developed four highly efficient, quick-response Combined Cycle Gas Turbine (CCGT) plants totaling 4,896 MW:

· Haveli Bahadur Shah: 1,230 MW

· Balloki: 1,223 MW

· Bhikki: 1,180 MW

· Punjab Thermal: 1,263 MW

To maximize these strategic assets during summer peaks, the limited domestic natural gas must be aggressively diverted away from inefficient captive power units and legacy GENCOs straight to these highly efficient plants. Furthermore, future planning must focus on Pumped Storage Hydropower (PSH) and Grid-Scale Battery Energy Storage Systems (BESS) to capture cheap solar power during the day and discharge it during evening peak hours. Run-of-the river hydropower projects offering a peaking facility like 700.7 MW Azad Pattan hydropower project that offers a 4-hour guaranteed daily peaking facility at the normal generation tariff is also a highly attractive option.

From generation tariff to the consumer’s bill

It is vital to distinguish between what power costs to generate versus what the consumer actually pays. While the generation tariff sits at Rs23.25 (US¢ 8.36)/kWh (the rate at which DISCOs buy power), NEPRA determines a base uniform national average consumer tariff of Rs33.38 (US¢ 12.00)/kWh.

However, by the time the bill reaches the end consumer, multiple layers of Fuel Charges Adjustments (FCA), Quarterly Tariff Adjustments (QTA), surcharges, and heavy taxes are tacked on top. The final effective retail rate easily escalates into the Rs45 (US¢ 16.19) to Rs65 (US¢ 23.38)+/kWh range.

When an industrialist or a citizen looks at a crippling bill of Rs 45+/kWh, their frustration is immediately directed at the power generators. In reality, the details are lost on how a manageable Rs23.25 (US¢ 8.4)/kWh paid to generators balloons into Rs 45+ (US¢ 16.2+) /kWh for the consumer.

Some effort has been made by the government to stimulate electricity consumption and through S.R.O. 2409 (I)/2025, whereby a fixed tariff of Rs23.98/kWh has been offered for “Incremental Consumption” compared to a reference period, for a period of three years, to stimulate industrial demand across XWDISCOs and K-Electric networks. But more can be done in this direction to increase electricity consumption, raise the load factor from 37.50 percent, and promote industrial growth in the same stroke.

This stark disparity highlights that reforming the fuel mix is only half the battle; we must ruthlessly improve the management, billing efficiency, and operational standards of the distribution companies (DISCOs), whether through privatization or strict concession models—so that the benefit of the 5-cent generation tariff can actually benefit industry and reach the masses.

A call for national consensus

Historically, capacity expansions and energy policies were dictated by rigid, centralized government mandates. As Pakistan transitions toward a competitive wholesale electricity market model—the Competitive Trading Bilateral Contract Market (CTBCM). Governmental control over generation choices like IGCEP should be minimized and future power additions must be driven entirely by economic, market-based decisions.

When it comes to multi-billion-dollar assets with multi-decade lifespans, market-based decision-making often falls short because private capital demands rapid returns and struggles to price in long-term macroeconomic or strategic value. Mega-projects like large-scale water storage, nuclear power plants, and major cascade hydropower installations share distinct economic characteristics that make pure private-sector financing nearly impossible without state intervention. The State should thus restrict its infrastructure footprint strictly to such strategic mega-projects to make such projects “bankable”. This intervention can be seen in the UK that has a Contracts for Difference (CfD) framework for hydropower and nuclear projects which is an excellent example of how governments can step in to fix this market failure without entirely taking over the projects.

Achieving the suggested operational benchmarks may seem daunting, but it is entirely within our technical and managerial reach. To solve this national crisis, we must adopt a transparent, data-driven approach. Disseminating complex grid metrics in clear, accessible formats is vital. Every stakeholder, from regulators and policymakers to industrial consumers and civil society, share the civic responsibility to study these numbers, debate structural reforms, and pull in the same direction.

Fixing the power sector is no longer just a policy preference; it is the ultimate key to Pakistan’s industrialization, economic sovereignty, and survival. By modernizing grid management, eliminating toxic fuel imports, and doubling the plant utilization factor, Pakistan can secure the 5-cent energy essential to power its future.

Fixing the power sector is no longer just a policy preference; it is the ultimate key to Pakistan’s industrialization, economic sovereignty, and survival. By modernizing grid management, eliminating toxic fuel imports, and doubling the plant utilization factor, Pakistan can secure the 5-cent energy essential to power its future.