Pakistan has assured the International Monetary Fund of taking key steps to keep its power sector financially stable, including timely electricity tariff adjustments and limiting subsidies to Rs830 billion in the upcoming budget.
The commitment is part of the country’s $7 billion Extended Fund Facility, under which authorities are trying to address long-standing issues in the energy sector, especially the build-up of circular debt.
Officials said a new baseline electricity tariff will take effect from January 15, 2027, as agreed with the IMF. The move is aimed at ensuring that power prices better reflect actual costs, particularly after recent shifts in global energy markets.
Focus on controlling circular debt
The government expects that better tariff management and controlled subsidies will help keep the annual increase in circular debt to around Rs300 billion, with a long-term goal of bringing it down to zero by FY31.
Circular debt has remained a major challenge, driven by inefficiencies, delayed payments, and gaps between production costs and consumer tariffs. Authorities believe that consistent tariff revisions and improved governance can help prevent the issue from worsening again.
The upcoming budget will allocate Rs830 billion in subsidies, covering tariff differences for distribution companies and K-Electric, payments related to former Fata areas, support for agricultural tube wells, and partial settlement of existing debt.
Delays in privatisation, reform efforts continue
Plans to privatise power distribution companies such as Iesco, Gepco and Fesco have faced further delays, with completion now expected by early 2027. At the same time, the government is reviewing the feasibility of privatising generation companies, including Nandipur and Guddu plants.
Work is also under way to bring in private sector participation in other distribution companies, including Hesco and Sepco, to improve efficiency and reduce losses.
To strengthen long-term planning, the government is preparing an Integrated Energy Plan, expected by April 2027. This plan will guide decisions on electricity supply and demand across the sector.
System improvements and future targets
Efforts to improve the transmission system are also ongoing. Authorities are working on appointing leadership for the Independent System and Market Operator, while new institutions such as the Energy Infrastructure and Development Management Company have already been set up.
Meanwhile, the National Electric Power Regulatory Authority has introduced guidelines to support a more competitive electricity market. The first auction under this framework, involving 200 megawatts, is expected by the end of June 2026.
Officials said these combined steps are expected to improve efficiency, reduce costs, and limit the need for sharp tariff increases in the future, while helping Pakistan meet its commitments under the IMF programme.
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