A significant electricity tariff reduction announced by Prime Minister Shehbaz Sharif has offered relief to consumers, but only part of the Rs7.41 per unit cut will be permanent. Out of this reduction, Rs3.93 per unit is sustainable, while the remaining Rs3.50 per unit will only last for three months.
Breakdown of the Tariff Relief
According to officials in the Power Division, the actual reduction in the electricity tariff is Rs5.96 per unit. However, after applying 18% General Sales Tax (GST), the relief grows to Rs7.41 per unit for end consumers.
The Rs5.96 per unit relief includes several components:
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Rs1.90 per unit from Quarterly Tariff Adjustment (QTA), taxed to Rs2.37.
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Rs1.70 per unit from petroleum levy savings, taxed to Rs2.12.
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Rs0.90 per unit from Fuel Charge Adjustment (FCA), taxed to Rs1.13.
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Rs1.45 per unit from renegotiated agreements with independent power producers (IPPs) and government plants, taxed to Rs1.81.
These elements contribute to the short-term and medium-term power relief announced by the government.
Read: Oil Prices Plunge to Pandemic-Era Lows Amid Global Trade War Fears
What Makes the Rs3.93 Cut Permanent?
The permanent relief of Rs3.93 per unit comes from two main sources. First, Rs1.81 per unit results from structural changes such as:
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Ending five IPP contracts.
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Converting 14 IPPs to “take and pay” mode.
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Terminating one more IPP contract.
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Delinking eight bagasse-based plants.
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Revising deals with six government power plants.
Second, Rs2.12 per unit stems from savings collected through the petroleum development levy (PDL), which was recently increased by Rs10 per litre.
The government has already submitted a petition to the National Electric Power Regulatory Authority (Nepra) for approval of the Rs1.81 per unit relief achieved through negotiations with power producers.
Why the Rs3.50 Cut Is Temporary
The remaining Rs3.50 per unit relief may not last beyond June 2025. This part includes:
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Rs2.37 per unit from the current QTA.
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Rs1.13 per unit from FCA-related savings.
Both adjustments are time-bound. Quarterly and monthly revisions by Nepra reflect changes in fuel costs, exchange rates, and other economic indicators. If global fuel prices rise or the rupee weakens, this temporary relief could vanish.
Relief Backed by Petroleum Levy, Not Budget
Officials explained that the Rs5.98 per unit relief will be financed through existing negative adjustments, not additional budget allocations. This includes Rs1.90 from QTA, Rs1.36 from FCA, and Rs1.71 from the petroleum levy. However, this approach comes at a cost — petroleum consumers will cross-subsidize the power relief. The petroleum levy was raised from Rs60 to Rs70 per litre to fund the Rs58.6 billion needed for the subsidy.
Businesses Demand Clarity
During a public hearing, industrialist Aamir Sheikh asked whether upcoming and current QTA cuts would apply simultaneously in the April–June period. Businesses, especially exporters, require clarity to plan pricing and operational costs.
In response, Power Division officials confirmed the federal cabinet has approved the package for all distribution companies, including K-Electric, for a three-month period. The government opted for quarterly adjustments over annual tariff rebasing due to economic limitations.
More Relief Expected in Q3 Adjustment
An additional Rs1 per unit cut is expected under the third-quarter adjustment (January–March 2025). The government plans to submit a fresh petition to Nepra in mid-April to implement this cut.
The total benefit, after taxes, could reach Rs7.69 per unit for industrial users and Rs7.41 per unit for residential consumers. However, lifeline consumers will not be included in this package.
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