ISLAMABAD: Export-oriented industries have strongly opposed proposed increases of 5 to 10 percent in electricity tariffs by power distribution companies (DISCOs), warning that higher energy costs, increased fixed charges and the recovery of historical expenses and utilities’ income tax liabilities from consumers could further undermine Pakistan’s export competitiveness.
During public hearings on tariff petitions of four DISCOs for the year 2027, industrial representatives raised objections to the proposed rebasing of electricity tariffs, an increase in the fixed-cost component, recovery of expenses dating back several years, a disputed Rs4 billion sales tax-related claim involving electricity supplied to Azad Jammu and Kashmir (AJK), and the inclusion of DISCOs’ income tax liabilities in consumer tariffs.
Aamir Sheikh, who represented the industry’s concerns, said exporters had been seeking a reduction in electricity tariffs to nine US cents per unit, whereas competing countries were offering substantially lower rates, in some cases around five cents per unit.
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He warned that the proposed tariff rebasing could further widen Pakistan’s cost disadvantage, particularly as the rupee’s appreciation against the US dollar would increase the dollar-equivalent cost of any rise in rupee-denominated electricity tariffs.
According to the industry’s assessment, the proposed rebasing could increase tariffs by between 5 and 10 percent in rupee terms, placing additional pressure on manufacturers competing in international markets.
Sheikh argued that the proposed increase had come at an inopportune time, as exporters were already facing limited availability of raw materials, weak sales and disruptions associated with the prevailing war situation. Any further increase in electricity costs, he maintained, would erode the competitiveness of export-oriented manufacturing and make it more difficult for Pakistani exporters to retain their international market share.
Another major concern raised by the industry is the proposed increase in the fixed-cost component of electricity tariffs from the existing eight percent to nearly 20 percent.
Industrial representatives argued that manufacturers were already operating under difficult conditions, with disruptions in raw material supplies and subdued sales forcing some factories to reduce operating shifts. Under these circumstances, higher fixed charges would increase electricity costs even when production levels and consumption declined.
Sheikh said industrial consumers could not afford an increase in fixed charges this year, including the minimum demand indicator (MDI) rate, which currently stands at Rs1,250 per kilowatt, equivalent to 25 percent of sanctioned load, according to the industry’s account.
Exporters have urged the authorities to retain the existing fixed-charge arrangements, arguing that increasing the fixed-cost share would place an additional burden on manufacturers regardless of their actual electricity consumption.
The industry has also expressed serious reservations over what it described as exceptionally high prior-year adjustments included in DISCOs’ revenue requirements.
According to Sheikh, representatives of distribution companies indicated during the hearings that they had been asked to clean up their accounts and claim all verified and unverified historical expenses before the proposed privatisation of the utilities.
The industry fears that consumers could consequently be required to pay for expenses incurred many years ago, including claims dating back as far as 15 years.
Industrial representatives have argued that historical expenses must be thoroughly scrutinised and independently verified before their recovery is allowed through consumer tariffs. They maintain that unverified claims should not automatically become a liability for electricity consumers.
The issue has assumed greater significance as the government pursues the privatisation of DISCOs as part of wider power-sector reforms. Exporters fear that allowing distribution companies to recover accumulated expenses through tariffs could increase the cost of doing business and place an additional burden on households and industry.
They have called for a detailed examination of the claimed expenses, their eligibility for recovery and the period to which they relate before any amount is incorporated into electricity prices.
A separate dispute concerns the proposed recovery of approximately Rs4 billion through Gujranwala Electric Power Company’s (GEPCO) tariff in connection with the removal of sales tax on electricity supplied to AJK.
According to the industry’s account, the government’s decision to remove sales tax on electricity supplied to AJK left GEPCO seeking recovery of the resulting amount through its tariff.
Exporters have opposed the proposal, arguing that consumers are already bearing the cost of cross-subsidising the lower electricity tariff applicable to AJK. They maintain that passing the additional Rs4 billion through GEPCO’s tariff would impose a further tax-related burden on consumers arising from a government decision.
The industry argued that the amount should not be recovered from electricity consumers, particularly when existing cross-subsidy arrangements already contribute to the cost of supplying electricity to AJK at lower rates.
The dispute has also raised questions about the role of the Alternate Dispute Resolution Committee (ADRC), which, according to the industry’s account, has been designated as the final forum for deciding the matter, with its decision not subject to challenge in court.
Sheikh criticised the outcome of the ADRC proceedings, stating that a two-to-one decision had gone against the industry’s interpretation of the legal issues surrounding the Rs4 billion claim.
The industry has questioned the legal basis for preventing an affected party from approaching the courts for relief, arguing that the finality attached to the ADRC’s decision raises constitutional concerns. The legal validity of the decision and the recoverability of the amount, however, would depend on the applicable law and relevant regulatory and judicial determinations.
Another major objection relates to the inclusion of DISCOs’ income tax liabilities in their revenue requirements and the proposed recovery of these amounts through electricity tariffs.
According to Sheikh, distribution companies indicated during the hearings that the government had directed that their income tax liabilities be passed on to consumers, irrespective of whether the companies earned profits or incurred losses.
He cited Lahore Electric Supply Company (LESCO), which has reportedly sought approximately Rs20 billion under this head, while Faisalabad Electric Supply Company (FESCO) has sought around Rs15 billion.
The industry has strongly opposed the proposed arrangement, arguing that consumers should not automatically be made responsible for meeting the income tax obligations of distribution companies.
Sheikh explained that companies incurring losses could still be liable to pay minimum turnover tax at the rate of 1.25 percent of turnover, subject to the applicable tax provisions.
According to the explanation cited during the hearings, the minimum tax paid could be adjusted against a future tax liability within three years if a company subsequently earned profits and became liable to pay tax at the applicable rate, which Sheikh cited as 30 percent.
Under this arrangement, the industry argues, consumers could be required to finance a utility’s minimum tax liability even when it is not earning a profit.
Sheikh said industry representatives had been told during the hearings that consumers were fortunate that DISCOs were operating at a loss and were therefore paying only the 1.25 percent minimum turnover tax, as the tax burden could be higher if the companies generated profits.
He argued that such a treatment would transfer the financial consequences of a utility’s profitability or losses to electricity consumers, rather than requiring the company to meet its tax obligations from its own resources.
The industry has urged the authorities to exclude these tax liabilities from consumer tariffs or require the distribution companies to pay them from their own resources.
Exporters have also sought clarification on whether the proposed treatment of income tax liabilities would continue after the privatisation of DISCOs.
They questioned whether consumers would be required to finance taxes arising from profits earned by private owners after the distribution companies are sold.
According to industry, such an arrangement could allow private owners to retain the commercial benefits of operating the utilities while passing their income tax liabilities on to electricity consumers.
The industry has therefore called for a clear policy on whether the proposed recovery of income tax through tariffs is intended to apply only to government-owned distribution companies or would also continue after their transfer to private ownership.
The question is particularly relevant as the government seeks to improve the financial performance and marketability of DISCOs ahead of privatisation. The treatment of historical expenses, fixed costs and taxation could influence the future tariff structure and determine how financial risks are distributed between utilities and consumers.
Exporters maintain that the proposed measures could increase production costs without delivering corresponding improvements in electricity affordability or industrial competitiveness.
They argue that a 5 to 10 percent increase in rupee-denominated tariffs, combined with the effect of the stronger rupee on the dollar-equivalent cost of electricity, could further widen the gap between Pakistan and competing export economies.
At the same time, higher fixed charges could increase the burden on factories operating fewer shifts, while the recovery of historical expenses and income tax liabilities could add further costs for manufacturers already facing weak demand and supply-side constraints.
The industry has called for a comprehensive review of DISCOs’ revenue requirements, verification of historical claims and reconsideration of proposals that would transfer additional financial obligations to consumers.
It has also sought clarity on the legal and regulatory basis for recovering income tax liabilities and prior-year expenses through electricity tariffs, as well as the future treatment of these costs after privatisation.
Copyright Business Recorder, 2026