Rs36.5bn power burden set to deepen inflationary pressures

Electricity consumers are facing another major financial shock as the proposed recovery of Rs36.54 billion in higher fuel costs through September bills threatens to push up the cost of living, raise business expenses and add to inflationary pressures across the economy.

The proposed monthly fuel adjustment of around Rs2.52 per unit has emerged at a time when households and businesses are already struggling with high electricity and fuel prices. The additional charge, if approved, would further increase production and operating costs for industries, traders and small businesses while reducing the purchasing power of consumers.

The Central Power Purchasing Agency-Guarantee (CPPA-G), representing the distribution companies, has sought recovery of the difference between the reference fuel cost of Rs7.0929 per unit and the actual cost of Rs9.6112 per unit during July 2026. The National Electric Power Regulatory Authority (Nepra) has reserved its decision on the proposed adjustment.

The proposed increase could also come alongside other tariff changes, creating a much larger cumulative burden for consumers from September. The expiry of the Rs1.98 per unit relief under the April-June quarterly adjustment and the expected upward quarterly adjustment for the third quarter could significantly increase the effective cost of electricity.

The impact is likely to extend well beyond electricity bills. Higher power costs increase the expenses of manufacturing, transportation, retail and services, with businesses eventually passing a portion of these additional costs on to consumers. This creates further pressure on prices of essential goods and services.

Economists and energy-sector experts said the repeated use of fuel adjustments and other tariff mechanisms to recover rising power-sector costs was creating an unsustainable cycle in which consumers were continuously being asked to absorb the consequences of structural weaknesses in the electricity system.

They said Pakistan could not achieve sustainable economic growth by repeatedly increasing electricity tariffs whenever generation costs rose. Instead, the government needed to reduce dependence on expensive imported fuels, improve the efficiency of power generation and transmission, control line losses and electricity theft, and accelerate investment in cheaper domestic energy sources.

The experts pointed out that industrial and commercial consumers were already facing electricity costs that were undermining their ability to compete with producers in regional and international markets. Any further increase would raise the cost of production and make Pakistani exports less competitive.

They called for a review of the fuel mix used for power generation and urged authorities to utilise cheaper indigenous resources wherever technically and economically feasible. Greater reliance on hydropower, solar, wind and other domestic sources could help reduce exposure to fluctuations in international fuel prices.

The prolonged disruption of low-cost domestic power generation was also cited as a major concern. Whenever comparatively cheaper generation remains unavailable, the system becomes more dependent on thermal plants and imported fuels, increasing the overall cost of electricity and placing additional pressure on consumers.

The experts stressed that Pakistan needed a long-term energy strategy centred on affordable domestic generation rather than short-term tariff adjustments. Investment in hydropower and renewable energy should be accompanied by improvements in existing power plants, transmission infrastructure and distribution networks.

They also called for urgent action to reduce transmission and distribution losses, improve bill recovery and curb electricity theft. Without addressing these structural issues, they warned, tariff increases would continue to provide temporary financial relief to the power sector while transferring the underlying cost to households and productive businesses.

The proposed adjustment is particularly worrying for export-oriented industries, small and medium enterprises and manufacturers already operating under severe cost pressures. Higher electricity bills could discourage new investment, limit expansion plans and make it more difficult for businesses to retain their competitiveness.

The experts urged Nepra to carefully examine the CPPA-G request before allowing the proposed burden to be transferred to consumers. They said the wider economic consequences of higher electricity prices, including their impact on industrial production, exports, employment and inflation, should be considered before approving any additional adjustment.

They further urged the government to engage representatives of trade and industry before finalising major tariff decisions and develop a predictable energy-pricing framework. Such a framework, they said, was essential for businesses to plan investment, production and exports with greater certainty.

Reducing energy costs, they added, should be treated as a central component of economic policy. Providing relief on electricity and fuel prices would not only ease pressure on consumers but also help lower production costs, revive industrial activity, improve export competitiveness and support broader economic recovery.

The business community has therefore called for a comprehensive review of the proposed Rs36.54 billion fuel-cost recovery and urged the authorities to find ways of reducing generation costs instead of repeatedly transferring additional financial burdens to electricity consumers.