Tariff reform increases domestic charges, provides relief to industry

By Babar Rais

February 12, 2026 (MLN): The tariff restructuring follows the Federal Government’s motion under Sections 7 & 31 of the NEPRA Act, which allows for such regulatory adjustments.

The proposal was endorsed by the Federal Cabinet, which granted approval for the implementation of a uniform tariff structure across the country. This approval paves the way for a nationwide realignment of power rates, marking a key policy shift in Pakistan's energy sector.

The decision is being communicated to the Federal Government for notification in the official Gazette, as required under Section 31(7) of the Regulation of Generation, Transmission, and Distribution of Electric Power Act, 1997, within 30 calendar days from the date of this communication.

If the Federal Government does not issue the notification within the specified timeframe, the Authority will proceed to notify the decision in the official Gazette as per Section 31(7) of the NEPRA Act.

In one of the most consequential overhauls of Pakistan’s power tariff regime since privatization, the National Electric Power Regulatory Authority (Nepra) has approved a sweeping rationalisation of electricity tariffs for calendar year 2026, introducing fixed monthly charges for domestic consumers while reducing industrial rates.

The decision, issued on Feb 11, seeks to correct structural distortions in cost recovery, ensure financial sustainability of the grid amid rapid rooftop solar adoption, and improve industrial competitiveness.

The overall subsidy allocation of Rs249 billion remains unchanged, but its distribution has been restructured.

Regulators have long argued that the power sector suffers from a fundamental imbalance between its cost structure and revenue recovery model.

While 73 per cent of total system costs including capacity payments, transmission infrastructure and administrative overheads are fixed in nature, only a fraction was being recovered through fixed charges.

The previous cost recovery pattern was as follows:

With rooftop solar installations expanding rapidly, grid consumption has declined while fixed obligations remain intact, increasing the burden on consumers without solar systems and intensifying concerns about a “death spiral” in grid economics.

Cross-subsidisation had also widened over time. Industrial consumers were paying above their cost of service to subsidise residential categories, particularly lifeline and protected users.

The number of protected consumers increased from 34pc of total consumers in 2022 to 63pc in 2026, while their share in total consumption rose from 16pc to 38pc — a trajectory Nepra described as financially unsustainable without reform.

Under the new structure, domestic consumers will, for the first time, pay fixed monthly charges based on sanctioned load (kW), moving to a two-part tariff combining fixed and variable components.

Lifeline consumers using up to 100 units remain fully protected and exempt from fixed charges. Protected consumers in the 101–200 unit slab are expected to see an increase of roughly Rs200–300 per/Kw/month due to the new fixed component.

Medium users consuming 201–400 units may experience bill increases of around Rs350–400/Kw/month, partly offset where variable rates have been reduced.

High-end users could see a net neutral or marginally reduced impact depending on consumption levels.

Revenue collected through domestic fixed charges will be redirected to reduce industrial tariffs. Nepra estimates that industry-wide savings could reach Rs102 billion annually.

Old tariff source: SRO-1168I2025

The industrial tariff falls in range of 4-4.57 per unit, improving Pakistan’s regional competitiveness. Business bodies, including FPCCI and APTMA, have welcomed the reduction but pointed out that residual cross-subsidies remain, particularly for B3 consumers.

They also highlighted the continued burden of surcharges, electricity duty and 17–18pc GST, as well as financing cost levies unrelated to electricity supply.

During the hearing, Mr. Rehan Javed praised the tariff reduction but expressed concerns that B3 industrial consumers still face tariffs above the cost of service, especially during off-peak hours, and criticized the PHL surcharge as a legacy financial tool that hinders tariff competitiveness.He suggested removing the surcharge and adjusting B2 tariffs to neutralize the cross-subsidy for B3 consumers.

Similarly, FPCCI echoed these concerns, also proposing compliance with international standards for Distributed Energy Resources (DERs) and the creation of an ancillary services market to improve grid stability and incentivize energy generation services.

The Authority clarified that, under Section 31 of the NEPRA Act, it must consider the national electricity policy, national electricity plan, and any Federal Government guidelines when determining or revising electricity rates.

The proposed revision of the Government of Pakistan's uniform tariff aligns with the budgeted Tariff Differential Subsidy (TDS) of Rs.249 billion, which remains unchanged.

The revised tariff falls within the consolidated revenue requirement of all XWDISCOs for 2026.

Given this, the Authority has no objections to approving the motion, reaffirming that the subsidy envelope of Rs.249 billion will not be altered.

The new structure applies to all 11 ex-Wapda distribution companies including IESCO, LESCO, FESCO, MEPCO, GEPCO, PESCO, HESCO, SEPCO, QESCO, TESCO and HAZECO as well as K-Electric.

By increasing fixed cost recovery, the measure is expected to provide more predictable cash flows, reduce working capital stress and ease circular debt pressures.

While the reform aligns with the National Electricity Policy 2021 and international regulatory practice, challenges remain.

Accurate verification of sanctioned load, potential political resistance to residential fixed charges, and continued solar penetration could necessitate further adjustments in the coming years.

For now, the decision marks a structural pivot in tariff design  prioritising grid sustainability and industrial relief while reshaping the balance of subsidy distribution within the power sector.

Copyright Mettis Link News