The Tariff Paradox & Competitiveness Gap: Paying Double in a Country with Surplus Power
Pakistan’s electricity pricing system is failing its industrial economy. At 15.7 US cents per kilowatt-hour — all taxes, surcharges, and levies included — Pakistan’s industrial electricity tariff stands roughly double the regional average and above the European Union’s average of 11.5 cents/kWh, despite Pakistan’s far lower per-capita income and manufacturing wage base (GlobalPetrolPrices.com, 2025; IEA, 2025). The competitiveness arithmetic is unforgiving: Indian manufacturers pay 6.3 cents/kWh, Chinese competitors 7.7 cents, Vietnamese producers 8.0 cents.
Pakistan is not paying a scarcity premium. The country has 45,888 MW of installed generation capacity against maximum demand of approximately 30,150 MW — an average annual utilisation rate of just 33.88% (NEPRA, 2024). Two-thirds of installed power infrastructure sits idle while every consumer pays for it through embedded capacity charges. The competitiveness gap is a product of four interlocking structural dysfunctions, each policy-correctable.
A natural experiment already exists in the Pakistani data. In FY2021–22, the government introduced Regionally Competitive Energy Tariffs (RCET), reducing the industrial electricity rate to 9 US cents/kWh. Textile exports surged 54% within a single fiscal year — from $12.5 billion to a record $19.3 billion (PIDE, n.d.). When RCET was withdrawn and tariffs climbed back, exports collapsed to $16.5 billion and have since remained flat. The experiment has been run; its lesson has not yet been institutionalised.
Four Structural Gaps Driving the Crisis
Gap 1 — The Cross-Subsidisation Burden
Industrial consumers are charged above cost-of-supply to fund residential and agricultural subsidies. FPCCI estimated this burden at Rs 85.6 billion in FY2020-21, growing to over Rs 330 billion by November 2025. A World Bank study (2016) found these subsidies “unfairly benefited higher-income households” — the cross-subsidy mechanism is both fiscally costly and poorly targeted.
Gap 2 — The Idle Capacity Trap
Capacity payments reached PKR 1.806 trillion in FY2024-25, constituting 61–65% of total Power Purchase Price. NEPRA’s own analysis shows that removing capacity charges would reduce per-unit generation cost from Rs 30.6/kWh to Rs 12.8/kWh — a 58% reduction. Firms simultaneously pay inflated grid tariffs and invest in expensive captive generation: a genuine double-cost burden (IEEFA, 2024; IGC, 2025).
Gap 3 — Distribution System Dysfunction
Actual T&D losses were 18.31% against NEPRA’s allowed 11.77%. Combined with collection losses, the shortfall reaches approximately 26%, translating to Rs 1.1 trillion annually — described by NEPRA as “almost equal to the federal development programme.” These losses are socialised through surcharges borne disproportionately by paying industrial consumers (NEPRA, 2024).
Gap 4 — Governance Fragmentation
NEPRA, CPPA-G, Ministry of Industries, BOI, SEZ Authority, and SIFC operate in separate silos with no formal mechanism for competitiveness impact assessment before tariff determinations. NEPRA’s mandate is cost-recovery, not industrial development — so no institution’s formal function requires energy pricing decisions to be evaluated for their manufacturing and export consequences.
Six Actionable Reforms
The evidence points not toward fatalism but toward a specific and sequenced reform agenda. Six interventions are both urgent and institutionally within reach:
The Manufacturing Cost: What Inaction Has Already Produced
Three consecutive fiscal years of large-scale manufacturing contraction — −7.0% in FY2022-23, near-stagnation at +0.9% in FY2023-24, and −1.5% in FY2024-25 — represent the worst sustained manufacturing downturn in Pakistan’s recent economic history (PBS, 2025). Across the textile sector alone, 187 mills have ceased operations — 147 in Punjab. Energy costs peaked at 55% of conversion costs in early 2025. Pakistan’s export-to-GDP ratio has stagnated at 10.48%, against India’s 21.85% and Vietnam’s 87.18%.
Pakistan’s power sector has produced a paradox: a country with 45,888 MW of installed capacity that nonetheless charges its manufacturers double the regional average for electricity. The competitiveness gap is correctable — and the window in which correction remains transformative rather than merely remedial is narrowing with each fiscal year that the power sector continues to tax what it should enable.