MUSHTAQ GHUMMAN

ISLAMABAD: The Federation of Pakistan Chambers of Commerce and Industry (FPCCI), the Korangi Association of Trade and Industry (Kati) and the Bin Qasim Association of Trade and Industry (BQATI) have urged the government to review the Prime Minister’s proposed power incremental package and reduce the incremental tariff rate from Rs 22.98/kWh to Rs 16/kWh.

The National Electric Power Regulatory Authority (Nepra) is scheduled to hold a public hearing on the package on Tuesday (Nov 11). The proposal has already been approved by the federal cabinet.

In separate letters to the Nepra’s Registrar, the chambers and associations referred to the Power Division’s plan to reduce tariffs for the industry and agriculture sectors. The FPCCI said that the plan will reduce subsidy requirements by up to Rs 300 billion. However, they argued that industries continue to bear an excessive cross-subsidy burden, amounting to Rs 131 billion according to NEPRA’s own estimates.

“If fiscal space now exists, it should be used to reduce this inequity rather than continue making industries subsidize other consumer categories. With most solar and protected consumers already shifted from the normal tariff structure, industries are left paying far above their cost of service. An immediate elimination of cross-subsidy would restore competitiveness and directly complement the Incremental Package’s goals of demand revival and sustainable energy use,” the FPCCI stated.

The apex business body noted that industrial tariffs have already risen from around Rs 34 per unit to nearly Rs 38 per unit due to quarterly and fuel cost adjustments. In this context, a fixed incremental rate of Rs 22.98/kWh offers a limited relief. The FPCCI therefore recommended that the Nepra fix the incremental consumption rate at Rs 16/kWh to ensure meaningful support and sustained growth in grid consumption.

The FPCCI also highlighted issues with the existing benchmark rules — including the 60 percent load factor assumption for captive and extended loads, the treatment of category change cases as new customers, and the 2.8 percent annual escalation factor — arguing that these provisions have created confusion and inequity across consumer classes.

To ensure fairness and simplicity, the FPCCI proposed a unified benchmarking framework, recommending that:

The current load factor requirements are overly complex and difficult for distribution companies (DISCOs) to apply uniformly, leading to confusion and inconsistent implementation.

Instead, the baseline or load factor should be determined using a three-year weighted average of verified consumption, distributed as: (i) 50 percent from FY 2024–25;(ii) 30 percent from FY 2023–24 ; and (iii) 20 percent from FY 2022–23.

Under this approach, all categories — including captive users, non-captive users, load-extension cases, and category-change cases — would be treated under the same methodology, ensuring fairness and transparency. Each year, the latest three fiscal years would be used for the weighted average, eliminating the need for artificial escalation factors such as the 2.8 percent annual increase. For new industrial consumers or connections without a prior consumption record, the FPCCI suggested applying a 50 percent load factor for baseline determination throughout the package’s tenure. This, it said, would ensure parity and prevent over- or under-estimation of demand. The simplified structure would also remove unnecessary parameters such as sanctioned-load dependency or arbitrary baselines.

The FPCCI further emphasized that the proposed formula fairly accommodates industries shifting from captive to grid power following the imposition of gas levies. By assigning higher weightage to FY 2024–25, it captures recent consumption patterns and prevents misclassification of such industries as “new,” thereby encouraging a shift toward grid-based power use.

The association argued that setting a fixed reference period (December 2023 to November 2024) is inequitable, as it penalizes industries that performed well during that period while rewarding those that underperformed.

“Two factories producing the same product in the same city would be treated unequally — the one that operates efficiently and consumes more power gets no room to grow, while the one that the under-utilized capacity gains an advantage. As a result, total demand doesn’t increase; it merely shifts,” the FPCCI stated.

In view of the three-year weighted average (50% of 2024–25, 30% of 2023–24, and 20% of 2022–23), the FPCCI called for correcting this distortion and giving every industry a fair and performance-based opportunity to expand.

The business community also stressed that industrial expansion requires a long-term investment and lead time, recommending that the incentive scheme remain available for a sufficient duration — or be linked to the commissioning of new capacity — so that genuine investors can benefit once production stabilizes.

“The entire purpose of this package is to stimulate demand. Hence, its calculation method must remain clear, verifiable and easy to audit,” the FPCCI stated. “The proposed three-year weighted average method, combined with a 50 percent load factor for new connections, achieves this objective by eliminating confusion and ensuring predictability for both utilities and consumers.”

The FPCCI concluded that a transparent, data-driven, and simplified methodology is essential for the success of the Incremental Consumption Package. NEPRA’s endorsement of this approach, it said, will ensure higher compliance and promote genuine industrial growth.

However, the business community warned that if the package is implemented in its current form, it will not achieve its intended objectives.

“If implemented without the proposed corrections, it risks disappointing both the government and industry by failing to generate the expected increase in consumption or revenue. The structure, as currently designed, does not reflect industrial realities and will therefore not deliver the desired results,” the FPCCI cautioned.

The FPCCI urged the Nepra and the Ministry of Energy (Power Division) to adopt its revised benchmarking formula to ensure that the package serves as a genuine instrument of industrial revival. It also reiterated that unless cross-subsidies are progressively removed from industrial tariffs, the government’s otherwise commendable effort to reduce subsidy requirements will lose its true significance.

“True reform can only be measured by competitiveness and growth, not by temporary fiscal savings achieved at the expense of the productive sector,” the FPCCI concluded.