The “Bijli Sahulat Package,” a winter electricity initiative, has finally been approved amid considerable anticipation. This pilot program has the backing of the IMF and other multilateral organizations and is set to run for three months during the winter to evaluate its impact. Initially, the government planned for the package to cover six months, but the IMF urged a three-month trial period instead.
Exploring this idea is worthwhile, especially considering the significant decline in Pakistan’s power sector demand over the past two years. With a tariff structure dominated by capacity charges, it makes sense to encourage increased consumption at the marginal rate of Rs26 per unit. Demand for electricity typically drops during the colder months from November to March, and since domestic consumption comprises 50% of the national total while industrial and commercial shares have remained stagnant, addressing this is essential.
Pakistan’s power infrastructure is built to handle peak summer demand, leaving a substantial portion of capacity unused for nearly half the year. This contributes to the high capacity charges reflected in consumer tariffs.
For residential users, the package offers limited benefit due to modest electricity needs in winter. Although authorities hope households will switch from gas-based appliances to electric ones, the cost gap remains large. Even after recent increases in gas prices, the highest domestic gas tariff is still around Rs8/kWh—three times less than the marginal rate for the extra electricity under the package.
Power consumption has declined across all sectors, and this incentive could help reverse some of that decline, potentially aligning with FY25 consumption targets. However, with more households turning to rooftop solar, it is uncertain if this package alone will be enough to drive significant increases in usage.
Attention then turns to industrial and commercial consumers, who account for 34% of the national demand. There is potential for growth in industrial consumption, especially given a low starting point after two years of declining large-scale manufacturing (LSM). Unlike residential consumers, industries might reschedule production to take advantage of the package if they have the capacity to do so. The formula for the package relies 80% on consumption data from the past two years, implying that year-on-year growth may happen naturally, even if industrial activity doesn’t match the peaks seen from FY16-FY18 or FY22.
It is important that the authorities do not see this initiative as the ultimate solution to power sector challenges. Comprehensive reforms must extend beyond pricing strategies. Nonetheless, the winter incentive package presents little risk and is worth trying as an initial step.
