ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) has brought to the government’s notice that additional financial burdens erode competitiveness, discourage investment, and hinder export performance without mentioning that industrial consumers are weighed down by excessive taxes, levies, and surcharges — particularly the Debt Servicing Surcharge (DSS) — which significantly inflate their effective electricity cost.

This advice was extended by Nepra’s Member (Technical), Rafique Ahmad Shaikh, in his additional note on determination of Quarterly Tariff Adjustment (QTA) for the first quarter of CFY 2025-26.

He said that the quarterly adjustment primarily reflects variations in the Power Purchase Price (PPP), including the impact ofT&D losses. The data attached with the decision clearly shows lower plant factors for thermal power plants operating under ‘Take-or-Pay’ capacity contracts. The reduced utilization of these plants is not only a result of lower demand but is also driven by AT&C-based load shedding by DISCOs.

As a consequence, the inefficiencies of DISCOs are being passed on to law-abiding consumers. At the same time, consumers involved in electricity theft are effectively enabled to continue doing so during non-load-shedding hours, while the financial impact of this theft is shifted onto paying consumers. This raises the cost of electricity for compliant consumers, further suppressing demand and reducing plant utilization — ultimately pushing tariffs even higher. This cycle has become a vicious one.

It is also evident from the data that the capacity payment for the first quarter of FY 2026 increased to around Rs. 500 billion — an increase of about Rs. 19 billion compared to the same period last year, when it stood at approximately Rs. 481 billion. The capacity payments being made to old, inefficient, and non- or under-utilized public sector power plants including old GENCOs and Wapda hydel must be reviewed immediately, as they are placing an undue burden on the power sector. Additionally, the utilization of comparatively inefficient power plants —often in violation of EMO due to transmission constraints—has also been observed and requires urgent corrective action.

The rise in capacity payments resulting from the low or non-utilization of power plants, as well as the dispatch of costlier plants in violation of EMO, is further increasing the overall power generation cost. Immediate measures are therefore needed to enhance operational efficiency and ensure the financial sustainability of the sector.

A similar situation exists with RE power plants, where seasonal and hourly variations in generation are adversely affecting the overall performance of the power sector. The cost of electricity from newly commissioned hydropower projects — both in the public and private sectors — as well as from earlier commissioned wind and solar plants still in their debt-servicing period, is placing a significant burden on consumers. In several cases, their per-unit power purchase price (PPP) is substantially higher, further straining the electricity sector. Therefore, any new addition to the generation mix, including renewable energy, must be carefully evaluated to prevent further financial burden on the power sector. Nepra has consistently highlighted these issues through various regulatory instruments, including the annual State of Industry Report. Nepra has also initiated proceedings against several power-sector entities responsible for operational inefficiencies. However, meaningful outcomes have remained limited due to underlying structural challenges within the power sector.

In this context, Rafique Ahmad Shaikh strongly recommended that the costs arising from inefficiencies within power sector entities should not be passed on to electricity consumers. Instead, the concerned organizations should bear these inefficiencies themselves. Transferring such costs to consumers may lead to an industrial slowdown, reduced GDP growth, increased unemployment, pressure on the current account deficit, weakened socioeconomic activities and an overall deterioration in the quality of life across the country.

Member (Tech) further stated that while he firmly believes that the cost of systemic inefficiencies should not be passed on to electricity consumers, he feels compelled to highlight few key inefficiencies within the current power sector framework and to propose potential remedies for consideration.

Persistent Underutilization of ‘Take-or-Pay’ thermal power plants: The continued underutilization of thermal power plants is contributing to an increase in the per-unit Capacity Purchase Price (CPP). This phenomenon warrants careful examination, particularly to determine whether the underutilization stems from a genuine lack of demand in the system. Evidence suggests otherwise: seven out of 12 distribution companies are still enforcing load shedding exceeding 12 hours per day in certain regions. Such extensive load shedding also penalizes law-abiding consumers, undermines confidence in the grid, and pushing consumers to seek alternative sources of electricity.

Ineffectiveness of AT&C loss reduction as a remedy: Efforts to improve the sector by targeting Aggregate Technical & Commercial (AT&C) losses through widespread load shedding have not yielded the intended results. Focusing solely on reducing AT&C losses — without addressing the broader operational inefficiencies —has proven insufficient to restore the health and long-term sustainability of the power sector

Poor quality of distribution services and fiscal burdens: The quality of service provided by distribution companies remains suboptimal. Compounded by heavy taxes, levies, and surcharges —particularly the DSS — these factors collectively inflate electricity costs for consumers. The result is a shifting of consumers towards decentralized or off-grid solutions, further weakening the demand for grid-based electricity.

Rapid growth of on-grid and off-grid solar installations: In recent years, on-grid solar installations have surpassed 6,000 MW, and total solar capacity, including both on-grid and off-grid systems, has reached approximately 13,000 MW. While this growth indicates a positive shift towards renewable energy, it also highlights a structural problem - consumers are increasingly seeking energy alternatives due to high tariffs, unreliable service, and lack of trust in the conventional electricity grid.

Additional Sectoral Inefficiencies: Other factors though beyond the immediate scope of this decision — also exacerbate the situation, including: (i) payment obligations such as PLAC (Part Load Adjustment Charges) and NPMV (Non Project Missed Volume); (ii) higher T&D losses and short recoveries of the billed amount; (iii) high receivables; (iv) transmission constraints; (iv) operation of plants in violation of the Economic Merit Order (EMO); and (v) underutilization of assets across all power sector segments.

These systemic inefficiencies contribute to rising electricity tariffs, creating a vicious cycle, higher tariffs suppress demand, while low demand in turn increases tariffs, he continued.

Economic and social implications: The cumulative impact of these inefficiencies is not merely financial, it is also economic and social. The country’s overall economy suffers due to an unreliable and poorly managed power system. The failure to provide sustainable, affordable, and reliable electricity erodes consumer trust and confidence. Consequently, consumers—from low-consumption residential households to high-consumption industrial users — are compelled to explore independent energy solutions.

Industrial competitiveness and the need for rational tariff structuring: It is well established that bulk and productive electricity demand is primarily driven by industrial consumers. Unfortunately, industrial growth in Pakistan has remained unsatisfactory specifically during past few years. Despite a large domestic market, reliance on imported goods continues to rise because many locally manufactured products are costlier than imported alternatives. Industrial representatives consistently report that the high cost of electricity— combined with the continued practice of burdening industrial users to subsidize other consumer categories—is a major factor behind this un-competitiveness.

Stakeholders across the industrial sector have repeatedly highlighted that this policy approach is short-sighted and ultimately counterproductive. Its long-term consequences permeate the entire economy, including: (i) closure of industrial units and reduced productive activity; (ii) underutilization of “take-or-pay” power generation capacity, causing inefficiencies and greater financial burden on the sector; (iii) increasing unemployment, driven by shrinking industrial output; (iv) reduction in government revenues from taxes and other industrial contributions; and (v)greater foreign exchange pressure on the national exchequer due to increased dependence on imported goods.

International experience shows that while some countries extend targeted support or subsidies to enhance industrial competitiveness, they do not compel their industries to subsidize other consumer categories.

Although several short-term relief packages have been extended to industries in recent years, none have provided the long-term certainty, cost rationalization, or structural reforms required to ensure industrial sustainability and growth. As a result, the industrial sector remains vulnerable, and the broader objectives of power-sector reform — efficiency, affordability, competitiveness, and economic stability — remain unattainable.

Given the current challenges in the power sector, the following measures are strongly recommended to restore industrial competitiveness and strengthen the overall electricity value chain: (i) eliminate cross-subsidization for industrial consumers-industries should be relieved from the responsibility of subsidizing other consumer categories until the power sector is able to offer truly competitive tariffs. The existing cross-subsidization framework undermines industrial viability, suppresses growth, and ultimately contradicts broader national economic objectives; (ii) reduce the taxation burden on industrial electricity consumption. Industrial consumers must not be weighed down by excessive taxes, levies, and surcharges—particularly the Debt Servicing Surcharge—which significantly inflates their effective electricity cost. These additional financial burdens erode competitiveness, discourage investment, and hinder export performance; (iii) Reform Time-of-Use (ToU) tariffs and remove PLAC burdens: ToU tariffs should be rationalized to remove the unnecessary burden of PLAC and to provide genuinely lower electricity prices during periods of low system demand. This restructuring would: (a) improve plant utilization and system efficiency; (b) reduce the average cost of generation; (c) provide industries with affordable off-peak energy; and (d) minimize operational and economic inefficiencies across the power system.

He further contended that implementing these reforms is critical not only for revitalizing industrial competitiveness but also for ensuring the long-term financial sustainability of the power sector. A strong and expanding industrial base is essential for increasing electricity offtake, improving load factors, reducing capacity-related costs, and stabilizing the sector as a whole.

“Since the RE tariff does not account of intermittency costs, consumers ultimately bear of the burden the renewable plant’s seasonal and hourly variability. In a Take-or-Pay power generation fleet where available generation capacity is underutilized, adding new capacity is generally feasible only if it replaces costlier energy. In other words, the power purchase price of the generation facility to be added in the system shall be lower than the Energy Purchase Price (EPP) of the currently unutilized, Take-or-Pay electric power generation capacity,” he further stated. Currently the power purchase from RE power plants is costlier than the conventional thermal power plants despite the facts the RE power plant have either zero or very nominal EPP.—MUSHTAQ GHUMMAN