ISLAMABAD:

The government has shared a new plan with the International Monetary Fund (IMF) to substantially increase fixed charges on electricity bills to punish industrialists who use less than their sanctioned loads and have shifted to solar and other off-grid sources of power.

What is officially called the “two-part industrial tariff policy” is primarily aimed at raising money from industrialists to make payments for idle capacity payments, which are the outcomes of faster migration of consumers from the expensive national grid and lower economic growth and productivity.

According to the new proposed policy, which a Power Division spokesman said might be implemented within two months, higher consumption from the national grid will be rewarded by cutting unit cost but lower utilisation of the national grid will be penalised by imposing heavy fixed charges.

Sources said Power Minister Sardar Awais Laghari recently shared the two-part industrial tariff policy plan with the IMF. The policy is being framed on the assumption that by increasing the fixed cost of electricity bills and reducing the price of units, the government can compel industrialists to stay on the national grid for longer.

The sources said initially the policy will be implemented for industrial connections, which at a later stage would be extended to commercial and residential users.

The government has been trying everything in its power to force people not to leave the national grid but is unable to address the reasons forcing people to migrate from the expensive grid.

According to the proposal, fixed costs will be spread over higher sales and it would also reduce the per unit cost of electricity. The government hopes that based on preliminary assessments, an increase in demand of approximately 1,000 MW could materialise within six to 12 months of implementation, although actual outcomes will depend on market response and participation levels.

At present, the energy cost for all consumers is much higher than the fixed cost being charged from them, although the government has been constantly increasing fixed prices for quite some time.

The Power Division believes there is no incentive for industrial consumers to increase their consumption to keep electricity bills low.

The monetary punishment would be higher if consumption from the national grid is the lowest compared with the sanctioned load. For instance, an industrial user in Karachi received a Rs8,158 bill for just four units of consumption, translating into Rs2,040 per unit cost because of a Rs6,750 fixed charge. This cost would be further increased under the new policy.

During recent budget discussions, the IMF also expressed concerns over fast depletion of industrial electricity demand from the national grid. Demand has been declining because of high power costs forcing consumers to leave the grid and adopt cheaper solutions like solar panels and gas-fed power generation.

However, there are concerns that if all high-paying consumers leave the grid, the power sector, which is already financially unviable, would collapse and there would be no buyers for power distribution companies.

Sources said the IMF has asked the government to share periodic data on industrial consumption and how many consumers have so far left the national grid before giving its stamp of approval.

Speaking on Mohammad Malick’s show, the power minister said the fixed cost of power generation was 75% whereas the cost of electricity was only 25%. During high consumption months the fixed cost is lower, but it jumps abnormally on lower consumption.

A Power Division spokesman confirmed the government is working on the policy, which can be implemented within two months. The proposed two-part industrial tariff is “optional rather than mandatory,” he said. The primary objective is to encourage growth in industrial electricity consumption and improve utilisation of the existing power system.

Giving the rationale for the policy, the spokesman said many industrial consumers maintain a high sanctioned load or maximum demand indicator capacity but consume relatively low amounts of energy. He said the power sector must still maintain generation, transmission and distribution infrastructure to ensure standby availability for these consumers. This infrastructure carries fixed costs regardless of actual energy consumption.

The spokesman said under the proposed tariff, industries would be incentivised to increase their electricity usage in line with their sanctioned demand.

“If an industrial consumer utilises more than 50% of its sanctioned load, it could benefit from a reduction in energy tariff of approximately one to two US cents per kWh, bringing the effective tariff down to around seven to eight US cents per kWh,” the spokesman said.

He claimed that with even higher utilisation levels, tariffs could potentially decline further to nearly six US cents per kWh, making Pakistan’s industrial electricity prices more competitive internationally.

The Power Division said aligning tariffs more closely with the underlying cost structure can benefit both the government and industrial consumers. Industries with higher utilisation of their sanctioned load stand to gain the most from this arrangement.

The spokesman said the proposed tariff is currently under consultation and finalisation. Once approved by relevant authorities and regulators, implementation is expected without significant delay. Based on current progress, finalisation is anticipated within the next two months.

In the initial phase, the tariff will primarily target industrial consumers. Continuous-process industries and other energy-intensive sectors are expected to be the first adopters, as the tariff structure would provide a strong incentive to increase grid consumption.

The policy may also influence industrial investment decisions regarding captive generation and solar installations, particularly because the daytime grid tariff could become comparable to the levelised cost of solar energy, according to the Power Division. As a result, industries may choose to rely more on the national grid for a larger portion of their energy requirements.

Asked about the IMF’s view, the spokesman said the finance ministry would be best placed to comment on any formal IMF position regarding the proposed tariff structure. He said the IMF has generally supported measures that promote economic activity, industrial growth, improved energy sector efficiency and better utilisation of existing infrastructure.

“Any tariff mechanism that increases industrial competitiveness, expands electricity sales and improves recovery of fixed system costs would broadly align with these objectives,” he added.