The government has prepared a comprehensive plan to increase prices of electricity, gas, and petroleum products in the upcoming fiscal year, fulfilling key assurances made to the International Monetary Fund (IMF) before the new budget.
According to an official document, the public should bracefor a significant additional financial burden as the government moves forward with tariff adjustments across the energy sector starting July 1, 2025.
The plan includes annual rebasing of electricity tariffs and scheduled gas tariff adjustments, alongside the introduction of a carbon levy.
The document states that the electricity tariff will be rebased annually from July 1, 2025. Gas tariffs will be adjusted twice — on July 1, 2025, and February 15, 2026.
Furthermore, a carbon levy of Rs 5 per litre will be imposed on petrol and diesel from July 1. Provincial governments will also cease providing subsidies on electricity and gas.
To address the longstanding circular debt issue in the energy sector, the government intends to take a loan of Rs 1,252 billion from banks. This amount will be recovered from electricity consumers over the next six years via a 10 percent debt service surcharge. In the event of a shortfall, the government will have the authority to increase the surcharge rate.
The plan envisages reducing the subsidy for electricity consumers in the new budget, with a target to bring circular debt repayments to zero by 2031. The National Electric Power Regulatory Authority (NEPRA) will continue issuing quarterly tariff adjustment notifications, and monthly fuel cost adjustments will be implemented promptly.
The government has assured that the gap between base tariffs and actual revenue requirements will be bridged without imposing additional electricity tariff burdens on low-income or vulnerable consumers. Instead, only targeted subsidies will be extended in the electricity sector.
The new circular debt management plan is expected to be announced in July after cabinet approval. The government highlighted that in the first half of the current fiscal year, a benefit of Rs 450 billion was realised due to a reduction in energy costs and improved recovery efforts.
As of January 2025, the circular debt stock in the electricity sector stood at Rs 2,444 billion, while the gas sector’s circular debt was recorded at Rs 2,294 billion by June 2024. The government has reiterated its commitment to continuing reforms to control the circular debt problem.
Moreover, cost recovery measures are being strengthened to eventually reduce prices in the energy sector. Outstanding arrears of Rs 348 billion are expected to be cleared through negotiations with Independent Power Producers (IPPs) by June.
