The government has devised a detailed plan to raise electricity, gas, and petroleum prices in the next fiscal year, fulfilling critical commitments made to the International Monetary Fund (IMF) ahead of the new budget.
An official document warns the public to prepare for a substantial financial impact as tariff revisions in the energy sector will begin from July 1, 2025. The plan involves annual electricity tariff rebasing, biannual gas tariff adjustments, and the introduction of a carbon levy.
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Starting July 1, 2025, electricity tariffs will be adjusted annually, while gas tariffs will be revised twice — once on July 1, 2025, and again on February 15, 2026. Additionally, a carbon levy of Rs 5 per litre will be imposed on petrol and diesel. Provincial governments will discontinue subsidies on electricity and gas.
To tackle the persistent circular debt problem in the energy sector, the government plans to secure a loan of Rs 1,252 billion from banks. This loan amount will be recovered from electricity consumers over six years through a 10% debt service surcharge, which may be increased if necessary.
The new budget aims to reduce subsidies for electricity consumers with a goal of completely eliminating circular debt repayments by 2031. The National Electric Power Regulatory Authority (NEPRA) will continue issuing quarterly tariff notifications, and monthly fuel cost adjustments will be applied without delay.
The government assures that tariff increases will not unduly burden low-income or vulnerable groups, with targeted subsidies maintained in the electricity sector to protect these consumers.
The circular debt management strategy is expected to be finalized and announced in July after cabinet approval. The government also noted a Rs 450 billion benefit during the first half of the current fiscal year, attributed to lower energy costs and better recovery measures.
As of January 2025, circular debt in the electricity sector reached Rs 2,444 billion, while the gas sector’s circular debt stood at Rs 2,294 billion as of June 2024. The government reiterated its commitment to ongoing reforms aimed at curbing the circular debt issue.
Additionally, efforts to improve cost recovery are being strengthened to ultimately bring down energy prices. Outstanding arrears totaling Rs 348 billion are expected to be cleared through negotiations with Independent Power Producers (IPPs) by June.
