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Why is electricity expensive in Pakistan? / Why Electricity bills going up?

Why is electricity expensive in Pakistan? / Why Electricity bills going up? 



In Pakistan, the price of electricity is set on two things. Firstly, electricity in Pakistan is produced by expensive fuel because the country has to depend on coal, diesel, furnace oil, and other imported fuels to produce electricity. Secondly, the fluctuation in the rates of the dollar. The government of Pakistan gave the authority to determine the value of dollars to market under the conditions of the IMF. Now the question is how it started? It is Started by Privatisation of the Power sector and Providing them sovereign guarantee. This all is discussed below with proper solutions. 

Why is electricity expensive in Pakistan? / Why Electricity bills going up?

Table of Content:


1) Why is electricity expensive in Pakistan? / Why Electricity bills going up?
2) Privatisation of Power Sector
3) Government of Pakistan Provided Sovereign Guarantee
4) What is include in Capacity Payments
5) Transmission Mechanism in the country Total Budget Rs. 14.4 Trillion of 2023-24: Rs. 1 Trillion in Subsides
6) IMF Conditions 
7) High Alert
8) What to do?

Privatisation of Power Sector


Before the 1990s nearly all power generation was managed by the government. But the shortfall of electricity and its management were not solved by the government. In 1993, the government of Pakistan decided to privatise the power sector. They created the Independent Power Producer Policy. It is also called IPP Policy.  

Government of Pakistan Provided Sovereign Guarantee 

To ensure investment they created a contract that guaranteed the investors a profit in dollar terms. Hence, if the price of a dollar goes up, electricity charges go up. The Government of Pakistan will pay fuel charges to investors and also the government will pay capacity charges. 

What is include in Capacity Payments

Capacity payments include costs of land purchase, design of structure, installation, taxes, insurance to investors, administration, debt servicing and return on equity. 

Transmission Mechanism in the country 

Pakistan loss around Rs. 200 billion in poor transmission structure. By the installation of new power plants the capacity of electricity increased. It also increased the electricity generation capacity to 41,557 MW. But the maximum demand of the country is 31,000 MW. And the transmission and distribution capacity is 22,000 MW.
source: Pakistan Economic Survey 2021-22.

It means that the generation of electricity is more but cannot be provided to the consumers due to poor electricity distribution mechanisms. As a result, due to the capacity charges the government of Pakistan is to pay a huge amount of money to the IPPs and it will increase tax burden on the people. 

Why is electricity expensive in Pakistan? / Why Electricity bills going up? 

Total Budget Rs. 14.4 Trillion of 2023-24: Rs. 1 Trillion in Subsides

Rs. 579 billion to power sector ( out of which Rs. 310 billion to IPPs). Rs 315 billion to K-electric. Rs. 50 billion for Petroleum which will be canceled due to the agreement with the IMF. Fixed capacity charges- 71 percent of the total cost. In other words, 62% subsidies to Private Power Producers and distribution, just for capacity charges not for producing more power.


Why is electricity expensive in Pakistan? / Why Electricity bills going up? 

IMF Conditions 

The recent agreement with the IMF by PM Shabaz Sharif and Finance Minister Ishaq Dar agreed with IMF conditions. These conditions are, 

  • Do not impose tariffs and barriers on trade.
  • Market will determine dollar rates.
  • Balance of Budget ( increase taxes, decrease government expenditure) 
  1.  Raise electricity Charges
  2. Raise fuel Prices 
  • Last but not the least, keep high interest rates, (which will not attract foreign investment)

High Alert

Payments of Rs. 2 trillion are due next year for capacity Charges. In other words, Pakistan will be bankrupt from IPPs and rising the price of dollars. 


What to do?

  • Short terms solutions 

  1. Government should renegotiate IPP capacity charges
  2. Retire all furnace oil, RLNG, and imported coal power plants ( that Produce extremely expensive electricity). 

  • Long term Solutions: 

  1. Government has to invest to improve transmission mechanism  

Why is electricity expensive in Pakistan? / Why Electricity bills going up? 

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