Pakistan's proposed power prices to lift inflation, help industry, analysts say

• Households using 100-300 units monthly will face rate increases up to 76% due to new fixed charges, while lowest-income users (1-100 units) will see fixed charges jump from zero to PKR 400
• Industrial electricity prices will fall 13-15%, addressing complaints that high power costs erode Pakistan's export competitiveness in textiles and manufacturing
• The pricing overhaul follows Pakistan's 2023 inflation spike of nearly 40%, though inflation has since cooled to 5.8%; analysts warn new power prices could reverse this progress

Summary

Pakistan Power Pricing Overhaul: Key Developments

Pakistan's proposed electricity pricing reforms, requiring IMF approval, will significantly redistribute subsidy burdens from businesses to households while reducing industrial costs. The plan eliminates the current system where businesses subsidize residential power bills.

Key Financial Figures:

• Industrial electricity prices to fall 13-15%
• Subsidy removal totaling PKR 102 billion ($365 million)
• Middle-class households face approximately 50% price increases
• Consumers using 100-300 units monthly could see rate hikes up to 76%
• Lowest-income households (1-100 units) will face new PKR 400 fixed charges (previously zero)
• Solar users: 466,000 compared to 37.6 million grid consumers

Market Implications:

Optimus Capital Management estimates the reforms will add 1.1 percentage points to inflation over 12 months. This comes after Pakistan experienced near-40% inflation in 2023, though it has since moderated to 5.8%. The pricing overhaul creates conflicting pressures: reducing costs for textile and manufacturing exporters while potentially driving consumer inflation higher.

Sector Impact:

The reforms address industrial competitiveness concerns, particularly in textiles and manufacturing exports. However, analysts warn that excessive fixed charges could push consumers toward complete grid defection, undermining long-term utility stability.

The regulator NEPRA has also modified solar pricing policies, ending net metering that previously valued exported and purchased electricity equally. Prime Minister Shehbaz Sharif has ordered a review to prevent cost transfers from solar users to grid consumers.

Regulatory Context:

Changes stem from IMF-mandated utility price increases since 2023 aimed at supporting struggling state power firms, highlighting tensions between fiscal reform requirements and household purchasing power constraints.