Punishing efficiency

Pakistan's power sector is once again attempting to treat the symptoms while ignoring the disease. The government's proposed "two-part industrial tariff policy", shared with IMF and expected to be implemented within months, seeks to substantially increase fixed charges on industrial consumers who use less than their sanctioned electricity load or have shifted part of their operations to solar and other off-grid sources. Industries that consume more grid electricity would receive lower per-unit rates, while those reducing their reliance on the national grid would face heavier fixed charges.

At first glance, the policy appears logical. Pakistan's electricity sector is burdened by massive fixed costs and capacity payments. As industrial demand has weakened and businesses have increasingly adopted solar energy to escape some of the highest electricity tariffs in the region, the burden of these fixed costs has fallen on a shrinking pool of consumers. The government fears that if large industrial users continue leaving the grid, the entire financial model could erode. However, penalising consumers for seeking cheaper alternatives is not a sustainable solution. Businesses did not migrate to solar out of fashion or ideology. They did so because grid electricity became unaffordable and unpredictable. Over the past several years, industrial tariffs have risen sharply, eroding the country's competitiveness and increasing production costs. The proposed policy risks setting a dangerous precedent. If consumers are punished for investing in alternative energy sources, confidence in future energy investments will weaken. Higher fixed charges are effectively another cost of doing business. They will eventually be passed on to consumers through higher prices, further fuelling inflation and undermining industrial competitiveness.

The power sector's crisis is real, but the answer lies in structural reforms and renegotiation of capacity payments. A healthy electricity sector should retain customers because it offers reliable and affordable power, not because leaving has become prohibitively costly.