Power generation for July 2025 has declined by about 5 percent YoY, and nearly 10 percent below the pricing benchmark, reaffirming how ill-planned policies and wishful projections are driving the country’s energy and industrial sectors towards even deeper structural challenges.

In July 2025, the power tariff was reduced by Rs 1.15/kWh for all consumers. However, the price consumers pay for electricity went up by Rs 2.45/kWh as the reduction was offset by expiry of the Rs 1.70/kWh tariff differential subsidy (TDS) given from April to June 2025 and the Rs -1.9/kWh QTA for FY25Q2.

The Rs 1.70/kWh TDS itself was initially planned to be financed from the levy on captive gas consumption, effective from February 2025.

The government conveyed in its Memorandum of Economic and Financial Policies to the IMF that “at least Rs. 0.90/kWh reduction could be front-loaded from the levy funds. And further relief would be brought as captive load transitioned to grid and lowered capacity costs for all.”

It is inconceivable that billions in revenue were expected from the levy when the objective was to transition captive load to the grid. As a result, captive gas consumption declined by around ~90 percent YoY under SNGPL and ~50 percent under SSGC, and the incorrect calculation of the levy was also injuncted by courts.

Consequently, little to no revenue has materialised. Instead, the government withheld savings from a dip in international oil prices (linked to the Trump Tariffs) through the Petroleum Development Levy and used these funds to provide the Rs 1.70/kWh relief.

As far as the lowered capacity costs for all go, this did not materialize either despite the transition of 600-800MW of captive load to the grid. As per Nepra’s decision on the QTA for FY25Q4, industrial sales increased by 46 percent compared to the same quarter in FY24, driven by the shift of 280 captive users to the grid and lower grid prices from April to June 2025.

However, overall purchases of DISCOs were only 0.35 percent above the reference period as around an equivalent load exited the grid for — most likely — solar. Rather, the Rs -1.89/kWh QTA for FY25Q4 was driven by the termination of IPP contracts (Rs 17 billion), renegotiation with IPPs (Rs 4 billion), debt reprofiling of K-2 and K-3 nuclear plants (34 billion), and non-availability of Neelum-Jhelum Hydro (Rs 19 billion).

Moving forward, the above impacts (of IPP terminations, renegotiations, and transition of captive users), representing the culmination of the power sector’s reform efforts over the past year, were integrated into projections for FY26, resulting in a Rs 1.15/kWh reduction in base tariffs and marking the end of the era of sizable negative quarterly adjustments.

Now the alarm bells are ringing again as........

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