Ahead of the upcoming budget 2025-26, the government has prepared a comprehensive plan to increase the prices of electricity, gas and petroleum products at the beginning of the new financial year.
The government has assured the International Monetary Fund (IMF) of strict economic reforms and revenue increases before the next budget, the effects of which will directly affect the people. According to the documents, annual rebasing of electricity tariffs will be done from July 1, 2025, while the adjustment of gas tariffs will be implemented in two phases, on July 1, 2025 and February 15, 2026. A carbon levy of Rs 5 per litre will be imposed on petrol and diesel from the same date.
According to a private TV channel (Samaa), the government has also decided that provincial governments will not grant any subsidy on electricity and gas. Rs 1252 billion will be borrowed from banks to repay circular debt in the energy sector, which will be collected from electricity consumers over the next 6 years. Under this objective, a 10 per cent debt service surcharge will also be imposed on consumers, while the government will be able to increase this surcharge in case of a shortfall.
The amount of subsidy given to electricity consumers is expected to decrease in the coming fiscal year. The government’s goal is to completely eliminate circular debt by 2031. Tariff adjustments will continue to be made by Nepra on a quarterly basis, while fuel price adjustments will also be implemented every month.
Under the government’s policy, efforts will be made to close the gap between the basic electricity tariff and the actual income of the companies. However, only targeted subsidies will be granted to directly protect vulnerable and poor consumers from additional burden.
The government document states that a new circular debt management plan will be introduced with the approval of the cabinet in July. In the first half of the current fiscal year, Rs450 billion has been saved due to a reduction in energy costs and an improvement in recovery.
According to further details, the volume of circular debt in the electricity sector was recorded at Rs 2444 billion by January 2025, while in the gas sector it was recorded at Rs 2294 billion by June 2024. A commitment has been made to continue the reform process to control these debts. At the same time, a target of clearing arrears of Rs 348 billion by June 2025 through negotiations with IPPs has also been set.
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