Amir Saeed

Pakistan’s latest federal budget signals a decisive move toward fiscal discipline in the energy sector, as sweeping reforms and targeted subsidy reductions reshape the government’s approach to managing power sector finances.

A Power Division spokesperson stated that it had requested Rs376 billion less in subsidy for the fiscal year 2025-26 compared to the previous year, resulting in equivalent savings for the national exchequer. Despite the lower subsidy, electricity rates have also been reduced. The historic reduction in subsidy has been made possible due to revolutionary reforms undertaken in the power sector, the spokesperson added.

The federal budget for FY26 reflects a significant shift in Pakistan’s power sector subsidy structure, with a marked reduction in the overall subsidy allocation —from Rs1.19 trillion in FY25 to Rs1.036 trillion in FY26. Among the key reductions, the subsidy for Inter-Distribution Company (Disco) tariff differentials has been lowered from Rs276 billion to Rs249 billion.

Support for electricity in the merged districts of Khyber Pakhtunkhwa (erstwhile Fata) has been slashed from Rs65 billion to Rs40 billion, while the allocation for tariff differentials in Azad Jammu and Kashmir has been cut from Rs108 billion to Rs74 billion. K-Electric’s tariff subsidy has seen a significant drop from Rs174 billion to Rs125 billion.

The subsidy for agricultural tube wells in Balochistan under Pepco has been more than halved, falling from Rs9.5 billion to Rs4 billion. However, a modest increase is seen in the allocation to K-Electric for the same purpose, from Rs500 million to Rs1 billion. Notably, payments to Independent Power Producers, which were not originally budgeted in 2024-25 but appeared in the revised estimates at Rs115 billion, are now projected at Rs95 billion for 2025-26.

The general or lump provision for power subsidies stands at Rs400 billion — slightly above the revised estimate of Rs394 billion from the previous year, though still below the originally allocated Rs509 billion. These steps are aimed at a more fiscally disciplined and reform-oriented approach to help reduce inefficiencies and improve financial sustainability of Pakistan’s energy sector.

Credit: INP-WealthPk