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ISLAMABAD: The government is preparing a major overhaul of the country’s electricity and gas tariff regime, shifting from a consumption-based slab system to an income-based model that will determine subsidies according to household earnings.
The reform, being finalised in line with commitments to the International Monetary Fund (IMF), will end subsidised tariff categories such as lifeline, protected and certain non-protected consumers. Instead of receiving relief through lower energy rates, low-income households will be compensated directly through the Benazir Income Support Programme (BISP) using verified income data.
Officials said the Power Division had been tasked with completing the transition by January 2027. Progress on the plan is expected to be shared with the visiting IMF mission due on February 26.
At present, subsidies are built into electricity tariffs based on monthly consumption. Of the country’s 38.6 million electricity consumers, about 2 percent are classified as lifeline users consuming up to 50 units per month receive Rs13 billion annually in subsidies. Another 1 percent consuming 51-100 units get Rs11 billion per year.
The largest share goes to the protected consumers using between 1-200 units per month, who account for 52 percent of total consumers and receive Rs562 billion annually. Non-protected consumers using 201-300 units receive Rs27 billion. In total, these categories account for Rs614 billion in annual electricity subsidies.
Authorities argue that the existing slab-based system has created distortions, allowing many households in the posh areas to qualify for protected status despite not being low-income. The number of protected consumers has reportedly increased from 9 million to 22 million, partly due to the rise of rooftop solar users and lower recorded consumption in some households where residents have moved abroad.
Under the proposed structure, the lifeline, protected and some non-protected consumers will be categorised into four income quantiles — Q1 to Q4 — based on earnings data. All consumers will pay the uniform average tariff, while those in lower-income brackets will receive direct cash support through BISP.
The reforms are also linked to the gradual reduction of cross-subsidies. The proposed reform would effectively bring an end to the slab-based power tariff structure altogether — a system long criticised for creating pricing distortions and unequal treatment among consumers.
Officials believe moving to a uniform tariff, coupled with targeted income-based subsidies through the BISP would eliminate structural distortions in the pricing mechanism. The shift is also expected to improve cost recovery in the power sector, ensuring that electricity tariffs better reflect the actual cost of supply while financial assistance reaches only genuinely low-income households.
The government has already cut Rs102 billion in cross-subsidy previously borne by the industrial sector to support low-income electricity consumers, lowering industrial tariffs by Rs4.04 per unit. To offset the shortfall, fixed charges for domestic consumers have been raised by Rs200 to Rs675 per month.
Once the Power Division completes its roadmap under the IMF programme, the Petroleum Division is expected to implement a similar income-based framework for gas consumers.
