Fixed costs, variable revenue: FY25’s projections highlight Pakistan’s perennial power sector problems

Pakistan’s power sector is in a perennial crisis. And the recent projections shared by the Ministry of Energy’s Power Division exemplify the reason.

The power sector’s total revenue requirement for fiscal year 2024-2025 is projected to rise to Rs3,768 billion. According to the data, the government expects to sell a total of 106 billion kWh in FY25, a decrease of four billion units from the previous year’s 110 billion kWh.

Energy charges for FY25 have been set at Rs1,161 billion, translating to Rs10.94 per kWh compared to Rs7.63 per kWh last year. The government has increased the energy charges by Rs321 billion, which appears to be a realistic adjustment considering the significant fuel cost adjustments during FY24 due to the lower assumption of Rs7.63 per kWh.

An amount of Rs1,952 billion has been allocated to meet the capacity charges requirement for FY25, which is Rs78 billion higher than last year. This translates to an increase of Rs1.38 per kWh for FY25.

Meanwhile, an amount of Rs164 billion has been allocated for system usage charges, and Rs391 billion for the margins of distribution companies. Additionally, Rs100 billion has been budgeted as remaining adjustments for FY24.

This breakdown shows that there is a significant mismatch between how Pakistan generates electricity and how it pays for it. For instance, 67% of the electricity costs are fixed and 33% are variable.

On the other hand, only 4% of the revenue comes from fixed sources while 96% is based on consumption.

This means that even if people across the country were to start using less electricity or switch to solar, the government’s overall electricity costs would not go down. In fact, it would increase the burden on those who continued to pay or remain part of the system since the cost per unit would rise.