Tariff plan 'insufficient' without base cuts

The business community has delivered a measured response to the government's proposed overhaul of industrial electricity pricing, welcoming the intent but warning that deeper structural issues remain unaddressed.

Reacting to the development, the Karachi Chamber of Commerce and Industry (KCCI) described the proposal as a step in the right direction but stressed that its impact may be limited without broader tariff reforms. Speaking to The Express Tribune, acting president Muhammad Raza acknowledged that the reduction in variable charges could provide partial relief, particularly for industries with consistent and high electricity usage.

However, he cautioned that the effectiveness of the model hinges on operational flexibility. "The benefits of this structure will depend on industries' ability to manage load efficiently," Raza noted, adding that such adjustments may be challenging for small and medium-sized enterprises (SMEs) and units with variable production cycles.

The Power Division recently (March 25) announced that it is developing an optional tariff mechanism for industrial consumers, designed to improve electricity utilisation and introduce more cost-reflective pricing based on time-of-use consumption. The proposal, being formulated under Federal Minister Sardar Awais Ahmed Khan Leghari, introduces a two-part structure combining fixed charges based on Maximum Demand Indicators (MDI) with variable charges aligned to actual energy costs across different time slabs.

According to an official statement, the model is intended to encourage industries to shift operations to off-peak hours, reduce strain on the national grid, and improve overall system efficiency. The framework also aims to limit the need for expensive capacity expansion while supporting industrial productivity through more predictable pricing. The proposed regime will remain optional, with consultations planned with stakeholders before finalisation.

Raza, in this regard, emphasised that the optional nature of the tariff allows each industrial consumer to decide whether it makes sense for their operations, and industries are not forced to adopt it; rather, they will have a choice to opt in based on feasibility.

He, however, underscored that the proposal does not address what it considers the central issue, which is high base electricity tariffs. According to the chamber, these underlying costs continue to erode industrial competitiveness and remain a major barrier to growth.

"The benefits of this structure will depend on industries' ability to manage load efficiently, which may be challenging for SMEs and units with variable demand. While the optional framework provides flexibility, it does not fully address the core issue of high base electricity tariffs. This is the main problem that needs to be tackled," he commented.

The KCCI acting president stressed the need for a clear long-term roadmap focused on structural reforms in the power sector. He said bringing energy costs to globally competitive levels is essential for reducing the cost of doing business and enabling Pakistani industries to compete in export markets.

He also clarified that the proposed industrial tariff structure would not directly impact residential consumers or small retailers. While some SMEs could potentially benefit by adjusting production schedules to off-peak hours, the broader concern remains the sustainability of electricity pricing in the long run.

The response highlights a recurring theme in industries' feedback. While incremental policy measures aimed at efficiency and demand management are welcomed, they are not seen as substitutes for comprehensive reform. Business leaders have long argued that without a meaningful reduction in base tariffs, the overall gains from such initiatives may remain limited.

As consultations move forward, the government is expected to incorporate stakeholders' input into the final design. For now, industry stakeholders appear cautiously optimistic but firm in their demand for more fundamental changes to Pakistan's energy pricing framework.