ISLAMABAD: Export industries in Pakistan are mounting opposition to proposed electricity rate increases, cautioning that the combined weight of higher tariffs, steeper fixed charges, and the pass-through of legacy costs and utility tax bills could deal a serious blow to the country’s standing in global markets.
The objections surfaced during public hearings on 2027 tariff petitions submitted by four power distribution companies, known as DISCOs.
Industry representatives took aim at several proposals: rebasing electricity tariffs, raising the fixed-cost component, recovering expenses stretching back as much as 15 years, a contested Rs4 billion sales tax claim tied to power supplied to Azad Jammu and Kashmir, and shifting DISCOs’ income tax obligations onto consumer bills.
Aamir Sheikh, speaking for the industry, said exporters have been lobbying for electricity priced at 9 U.S. cents per unit, noting that rival nations offer far cheaper rates — some as low as 5 cents per unit.
He cautioned that the proposed rebasing would deepen Pakistan’s cost disadvantage, especially since the rupee’s gains against the dollar magnify the dollar-equivalent impact of any rupee-denominated tariff increase.
Industry estimates put the potential rebasing increase at 5 to 10 percent in rupee terms, piling more pressure on manufacturers battling for international market share.
Sheikh described the timing as especially harmful, pointing to constrained raw material supplies, sluggish sales, and disruptions stemming from the ongoing war situation. Additional electricity cost increases, he said, would sap the competitiveness of export manufacturing and jeopardize Pakistan’s hold on overseas markets.
A second flashpoint is the proposal to lift the fixed-cost portion of electricity tariffs from 8 percent to roughly 20 percent.
Industrial representatives said factories are already strained, with raw material shortages and weak sales pushing some to cut operating shifts. Higher fixed charges, they argued, would drive up electricity costs even as production and consumption fall.
Sheikh said industrial consumers cannot absorb an increase in fixed charges this year, including the minimum demand indicator rate, which stands at Rs1,250 per kilowatt — equal to 25 percent of sanctioned load, according to the industry’s figures.
Exporters want the existing fixed-charge structure left intact, warning that a larger fixed-cost share would burden manufacturers no matter how much electricity they actually use.
The industry also voiced alarm over what it called unusually large prior-year adjustments embedded in DISCOs’ revenue requirements.
Sheikh said distribution company representatives told the hearings they had been instructed to tidy up their books and claim all verified and unverified historical expenses ahead of the planned privatisation of the utilities.
The industry worries consumers could end up footing the bill for costs incurred many years ago, with some claims reaching back 15 years. Industrial representatives insisted that historical expenses undergo rigorous scrutiny and independent verification before being recovered through tariffs, and that unverified claims should not automatically land on consumers.
The matter carries added weight as the government pushes DISCO privatisation under broader power-sector reforms. Exporters fear that letting distribution companies recoup accumulated expenses through tariffs would raise business costs and strain households and industry alike.
They have demanded a detailed review of the claimed expenses, their eligibility for recovery, and the periods they cover before any amount enters electricity prices.
A separate fight centers on the proposed recovery of about Rs4 billion through Gujranwala Electric Power Company’s tariff, linked to the removal of sales tax on electricity supplied to Azad Jammu and Kashmir.
According to the industry, the government’s decision to scrap the sales tax on power sent to AJK left GEPCO seeking to recover the shortfall through its tariff.
Exporters opposed the move, noting that consumers already shoulder the cost of cross-subsidising AJK’s lower electricity tariff. They argued that adding another Rs4 billion through GEPCO’s tariff would pile a further tax-related burden on consumers because of a government decision.
The industry contended the amount should not be recovered from electricity consumers, especially when existing cross-subsidy arrangements already help fund lower-rate power supply to AJK.
The dispute has also spotlighted the role of the Alternate Dispute Resolution Committee, which the industry says has been designated as the final arbiter in the matter, with its ruling immune from court challenge.
Sheikh criticized the ADRC outcome, saying a two-to-one decision went against the industry’s reading of the legal questions surrounding the Rs4 billion claim.
The industry has challenged the legal basis for blocking an affected party from seeking court relief, arguing that the finality given to the ADRC’s decision raises constitutional questions. The decision’s legal validity and the amount’s recoverability would hinge on applicable law and relevant regulatory and judicial rulings.
Yet another major objection targets the inclusion of DISCOs’ income tax liabilities in their revenue requirements and the proposed recovery of those sums through electricity tariffs.
Sheikh said distribution companies told the hearings the government had ordered that their income tax liabilities be passed to consumers, whether the companies turned a profit or posted losses.
He pointed to Lahore Electric Supply Company, which has reportedly sought about Rs20 billion under this head, and Faisalabad Electric Supply Company, which has sought roughly Rs15 billion.
The industry came out strongly against the arrangement, saying consumers should not automatically be saddled with distribution companies’ income tax obligations.
Sheikh explained that loss-making companies could still owe minimum turnover tax at 1.25 percent of turnover, subject to applicable tax provisions. According to the explanation offered at the hearings, that minimum tax could be offset against future tax liability within three years if a company later became profitable and owed tax at the applicable rate, which Sheikh identified as 30 percent.
Under this setup, the industry argues, consumers could be forced to bankroll a utility’s minimum tax bill even when it is losing money.
Sheikh said industry representatives were told at the hearings that consumers were lucky DISCOs were running at a loss and paying only the 1.25 percent minimum turnover tax, since the tax burden could be heavier if the companies turned a profit.
He argued that such treatment would shift the financial fallout of a utility’s profitability or losses onto electricity consumers, instead of making the company cover its tax obligations from its own resources.
The industry has urged authorities to strip these tax liabilities from consumer tariffs or require distribution companies to pay them from their own funds.
Exporters also want clarity on whether the proposed treatment of income tax liabilities would survive DISCO privatisation. They asked whether consumers would be made to finance taxes on profits earned by private owners once the distribution companies are sold.
According to the industry, such an arrangement could let private owners pocket the commercial upside of running the utilities while dumping their income tax liabilities on electricity consumers.
The industry has therefore pressed for a clear policy on whether the proposed recovery of income tax through tariffs applies only to government-owned distribution companies or would continue after a transfer to private ownership.
The question matters greatly as the government tries to spruce up DISCOs’ financial performance and market appeal before privatisation. How historical expenses, fixed costs, and taxation are handled could shape the future tariff structure and decide how financial risks are split between utilities and consumers.
Exporters maintain the proposed measures could drive up production costs without making electricity more affordable or industry more competitive.
They argue that a 5 to 10 percent rise in rupee-denominated tariffs, combined with the stronger rupee’s effect on the dollar-equivalent cost of electricity, could widen the gap between Pakistan and rival export economies.
Meanwhile, higher fixed charges could weigh on factories running fewer shifts, while recovering historical expenses and income tax liabilities could heap more costs on manufacturers already grappling with weak demand and supply-side constraints.
The industry has called for a sweeping review of DISCOs’ revenue requirements, verification of historical claims, and a rethink of proposals that would shift additional financial obligations onto consumers.
It has also demanded clarity on the legal and regulatory basis for recovering income tax liabilities and prior-year expenses through electricity tariffs, and on how those costs would be treated after privatisation.
