The Phantom Payments: Inside Pakistan’s Electricity Tariff Scandal
How capacity charges, inflated consumer counts, and reversed solar policies are costing millions of Pakistanis billions of rupees while accountability vanishes into bureaucratic silence
In the sterile conference rooms of Pakistan’s National Electric Power Regulatory Authority, decisions worth trillions of rupees are made with bureaucratic efficiency. Technical staff prepare elaborate tariff determinations, economists project consumption patterns, and officials sign off on rate structures that affect 230 million people. The machinery of regulation turns with apparent precision. But when you examine the numbers closely, when you compare one document to another, when you ask basic questions about who benefits and who pays, the entire edifice begins to crack.
A recent BR Research investigation into NEPRA’s FY26 tariff determination uncovered something troubling. The consumer classification data doesn’t match the electricity consumption estimates. The consumption estimates contradict the solar capacity projections. And none of these figures align with observable reality. This isn’t sloppy arithmetic or minor discrepancies. These are fundamental contradictions that suggest something deeper and more problematic about how Pakistan’s electricity system actually functions.
The residential consumer categories tell a particularly strange story. Between FY22 and mid-2025, the number of subsidized consumers more than doubled from 9.5 million to 20.71 million households. Their total consumption surged from 8,527 million kilowatt-hours to 19,711 million kWh in roughly the same period. This represents demographic growth so rapid it defies every known trend in Pakistan’s economy and population. Either millions of previously wealthy households suddenly became poor enough to qualify for subsidies, or the qualification criteria expanded dramatically, or something else entirely is happening that officials prefer not to discuss.
The tariff structure reveals the stakes of this classification game. Protected domestic consumers using between 1 and 100 units monthly pay Rs10.54 per unit. Their non-protected counterparts in the identical consumption bracket pay Rs22.44 per unit. That’s not a modest difference or a small subsidy. It’s more than double. For a household consuming 100 units monthly, the difference amounts to roughly Rs1,200 per month or Rs14,400 annually. Multiply that across millions of households and you’re looking at billions of rupees in subsidies flowing through a classification system whose criteria remain conveniently opaque.
Who decides which families qualify for protected status? How are these determinations verified in a country where documentation is often informal and corruption endemic? Why has the protected class exploded so dramatically in such a short time? These questions don’t get asked in public hearings or addressed in NEPRA’s determinations. The federal government now shoulders a Rs248 billion annual subsidy to maintain these artificially low tariffs for the protected class. This money doesn’t materialize from thin air. It comes from debt accumulation, from foregone development spending, from other sectors that get starved so electricity can be subsidized. And increasingly, evidence suggests it doesn’t even reach those who truly need it.
But consumer classification anomalies are merely the surface of Pakistan’s electricity crisis. Beneath the tariff structure lies a financial time bomb that grows more dangerous each year. Capacity payments have become the third rail of Pakistani energy policy, the topic everyone acknowledges but nobody can address. The country now pays Rs2.2 trillion annually to Independent Power Producers simply for maintaining generation capacity, regardless of whether those plants produce electricity. After debt servicing, capacity payments consume most of what’s left of government revenue.
During recent parliamentary testimony, a NEPRA official made a startling admission. When lawmakers demanded to know why capacity charges couldn’t be reduced, the official stated flatly that they cannot be touched. This wasn’t presented as a difficult challenge or a complex negotiation. It was stated as immutable fact. Pakistan is contractually locked into guaranteed payments to IPPs spanning decades, agreements that insulate producers from every market force while consumers bear all risk.
The mathematics of this arrangement strain credulity. In June 2025 alone, Part Load Adjustment Charges reached Rs4.1 billion. These are penalties Pakistan pays when power plants run below designed capacity. Over the full fiscal year, these penalties accumulated to Rs41.2 billion. Think about that structure for a moment. The government pays IPPs to maintain capacity. When that capacity isn’t used because Pakistan doesn’t need the electricity, the government pays additional penalties for underutilization. It’s a system where the house always wins and the house is always the power producer.
Representative Abdul Qadir warned during the parliamentary session that capacity payments could balloon from the current Rs2.2 trillion to Rs5 trillion annually under present trends. He added an even more dystopian note. Future legislation, he cautioned, could impose charges on households with solar panels and battery storage. Pakistan may soon reach a point where citizens pay not only for electricity they don’t consume from the grid but face penalties for generating their own power. The logical endpoint of this trajectory is a captive population with no escape from an extortionate system.
Specific cases illuminate how this works in practice. Guddu Unit-16, a 747-megawatt power plant, entered forced outage in July 2022. Nearly three and a half years later, it remains offline. Yet throughout this entire period, the plant has continued claiming capacity payments. In June 2025 alone, this non-functioning facility cost consumers Rs827 million. The cumulative total since its shutdown exceeds Rs116 billion paid to a power plant that hasn’t generated a single kilowatt-hour in years. The plant sits idle, the payments flow, and nobody is held accountable.
Then there’s Neelum-Jhelum, the hydroelectric project that became a national embarrassment. Pakistani electricity consumers have already paid Rs75.5 billion through a dedicated surcharge collected specifically to fund this project. The money was collected, dutifully extracted from millions of monthly bills. The plant was ostensibly completed. But the electricity never flows. The facility remains offline due to technical problems and mismanagement. Where did three-quarters of a trillion rupees go? Who bears responsibility for this failure? The answer appears to be nobody in particular and everybody in general, which in Pakistan means nobody at all.
NEPRA member Rafique Sheikh described these cases as glaring governance failures, pointing to persistent forced outages, delayed project execution, and inadequate transmission planning. His assessment is accurate as far as it goes, but pointing out problems and solving them are entirely different matters. Three years into Guddu Unit-16’s outage, consumers continue funding phantom electricity while officials issue concerned statements and nothing changes. This isn’t governance failure in the sense of incompetence. It’s governance failure as a business model.
Just as Pakistan’s electricity crisis seemed intractable, citizens started solving the problem themselves. Between 2022 and 2025, hundreds of thousands of households and businesses invested billions of rupees in rooftop solar panels. This represented an unprecedented grassroots energy transition, individuals and companies spending their own money to escape crushing electricity costs and chronic load shedding. The government initially encouraged this through net metering, a system allowing solar users to sell excess generation back to the grid at Rs22 per unit.
Solar adoption accelerated rapidly, threatening the cozy arrangement between utilities, IPPs, and regulators. In October 2025, Prime Minister Shehbaz Sharif directed NEPRA to review solar buyback tariffs. The stated concerns involved grid stability and economic viability. The result was a proposed shift from net metering to gross metering that would slash buyback rates from Rs22 to Rs11.30 per unit, a 48 percent reduction that renders most rooftop solar installations economically marginal.
The official justification for this policy reversal is revealing in its dishonesty. NEPRA argues that utility-scale solar projects now operate below Rs10 per unit, making the Rs22 buyback rate economically unviable. But this comparison is deliberately misleading. Utility-scale projects benefit from economies of scale, competitive procurement processes, and often government subsidies unavailable to individual homeowners. Comparing rooftop solar costs to industrial-scale installations is comparing apples to orchards. Of course large projects are cheaper per unit. That’s true for literally every form of infrastructure.
The real motivation surfaces in NEPRA’s complaint that the grid has become a free battery for solar users. This framing tells you everything about who regulators serve. Citizens who invested their own money in solar equipment, who reduced grid demand during peak hours, who provided distributed generation that actually strengthens grid resilience, are viewed not as contributors but as freeloaders. The regulatory response to Pakistanis solving their own electricity problems is making that solution economically unworkable, ensuring continued dependence on a failing system.
Threading through every anomaly, every inflated payment, every mysterious policy reversal is governance failure on a scale that suggests design rather than accident. When a 747-megawatt plant claims Rs116 billion without generating electricity, that’s not oversight. When consumer classifications mysteriously expand to double the subsidized population just before elections, that’s not demographic evolution. When Rs75 billion collected for a specific project disappears into a non-functioning facility with no accountability, that’s not mismanagement. These outcomes require coordination, require people looking the other way at critical moments, require systems that make transparency nearly impossible.
NEPRA itself acknowledged approximately Rs250 billion in unwanted costs imposed on consumers due to governance failures. This admission is extraordinary. The regulatory body explicitly tasked with protecting consumer interests publicly admits that a quarter trillion rupees in charges shouldn’t exist. Yet the admission comes with no roadmap for recovery, no penalties for responsible parties, no structural reforms to prevent recurrence. The acknowledgment serves as absolution, transforming negligence into inevitability through bureaucratic confession.
The pattern repeats across the sector with numbing consistency. Transmission bottlenecks force expensive generation dispatch while cheaper sources sit idle, costing Rs69 billion in unnecessary capacity charges. Delayed project execution adds years and billions to infrastructure costs. Inadequate planning results in oversupply during low-demand periods and shortages during peak consumption, maximizing inefficiency at every turn. Each failure gets documented, acknowledged, and then perpetuated.
Pakistan’s uniform tariff policy, which applies identical rates across all distribution companies, sounds like equitable treatment. In practice, it’s a masterclass in cross-subsidization that obscures true costs and eliminates accountability. Efficient distribution companies cannot reward customers with lower rates. Inefficient ones face no penalty for waste and line losses. The policy socializes losses while privatizing gains, ensuring mediocrity becomes the performance ceiling.
The FY26 determination illustrates this sleight of hand. The national average tariff dropped by 62 paisa to Rs33.38 per unit, suggesting improvement. But the reduction was consumed entirely by changes in sales mix as subsidized consumers increased exponentially. In other words, the system became more efficient, but expanded subsidies absorbed those gains. End consumers pay the same or more despite theoretical improvements. This circular logic pervades electricity pricing. Every efficiency gain gets consumed by expanding subsidies, growing capacity payments, or mysterious technical losses.
Distribution companies report theft and technical losses consuming 15 to 20 percent of electricity before reaching paying customers. These losses persist year after year without meaningful intervention. At what point does chronic inability to address theft become complicity? Pakistan’s circular debt reached Rs2.63 trillion by April 2023, driven partly by these losses. The government’s primary solution remains increasing tariffs, an approach that demonstrably fails as circular debt continues growing regardless.
The recent attempt at IPP contract renegotiation reveals how deeply entrenched these interests have become. In October 2024, the government announced termination of contracts with five IPPs, claiming Rs411 billion in annual savings. Prime Minister Sharif praised these producers for voluntarily agreeing to terminate contracts in the national interest. But reports indicated the government utilized military assistance during negotiations, suggesting discussions occurred under duress rather than mutual agreement. Energy Minister Awais Leghari publicly assured stakeholders the government wouldn’t unilaterally alter contracts, even as those contracts were being altered through coercive methods that terrified future investors.
Pakistan has attempted IPP renegotiations in 1998, 2012, 2020, and again in 2024. Each round produces partial relief and headlines about government victories. Then capacity payments resume their upward trajectory and the crisis deepens. The 2021 agreement reduced IPP returns from 15 to 18 percent down to 13 percent, restructured dollar-denominated payments, and secured waivers on some outstanding capacity charges. These were hailed as breakthrough reforms. Yet by 2026, capacity payments had reached Rs2.2 trillion and climbing. The structural issues remain unaddressed because addressing them would require confronting who truly benefits from the current arrangement.
Where is accountability when NEPRA’s own tariff determination contains contradictions so fundamental that basic mathematics breaks down? If classification systems, consumption projections, and solar capacity estimates tell different stories within the same official document, who reviews these before implementation? Who bears responsibility when errors cost consumers billions? The answer is nobody. Pakistan’s regulatory structure creates perfect conditions for diffused responsibility. NEPRA sets tariffs but claims its hands are tied by government policy. The Power Division requests subsidies but implements NEPRA determinations. Distribution companies collect revenues but blame theft for shortfalls. IPPs demand capacity payments per contractual terms negotiated by previous administrations. Everyone points fingers. Nobody holds the bag.
This accountability vacuum extends to the most basic questions. When subsidized consumer counts double in four years, who verified eligibility? When capacity payments consume most government revenue after debt service, who renegotiates obviously unsustainable contracts? When solar policy reverses overnight, who assessed impact on hundreds of thousands of households who invested based on previous commitments? The silence is absolute and deafening.
Pakistan’s electricity sector doesn’t suffer from a single catastrophic failure. It suffers from systemic dysfunction operating as normal. Solving it requires confronting uncomfortable truths that implicate every major stakeholder. Consumer classification needs forensic audit with field verification of eligibility rather than self-reporting. If 20.71 million households now qualify as protected consumers, prove it. Any system where protected consumers more than double in four years without transparent criteria invites manipulation.
Capacity payment contracts demand immediate renegotiation. The argument that these are inviolable agreements ignores that contracts signed under opaque conditions, potentially involving corruption, lack moral legitimacy. When capacity payments threaten national solvency, they become security issues requiring extraordinary measures. Other countries have successfully renegotiated IPP contracts. Pakistan’s claim of helplessness rings hollow.
Solar policy needs reversal to the net metering framework that drove renewable adoption. Slashing buyback rates to marginalize rooftop solar while maintaining Rs2.2 trillion in thermal plant capacity payments reveals whose interests regulators actually serve. It’s not consumers. It’s not the environment. It’s certainly not the national interest.
Governance failures require consequences. When Guddu Unit-16 claims Rs116 billion without generating electricity, executives and regulatory officials who approved continued payments should face investigation and potential prosecution. When Rs75 billion collected for Neelum-Jhelum disappears into a non-functioning project, forensic accounting should trace every rupee. Without personal and institutional consequences, dysfunction perpetuates indefinitely.
Pakistan needs independent oversight of its electricity regulator. NEPRA’s admission of Rs250 billion in unwanted consumer costs without meaningful reform proves self-regulation fails. An independent audit of tariff determinations, consumer classifications, and capacity payment justifications, conducted by international experts without local political ties, could expose the full scope of what’s really happening.
The hidden anomalies in Pakistan’s electricity tariff setting aren’t technical glitches. They’re symptoms of a system serving everyone except the consumers who fund it. When classifications mysteriously expand, when capacity payments balloon beyond sustainability, when successful solar adoption gets kneecapped to protect failing utilities, when Rs250 billion in governance failures elicit shrugs rather than prosecutions, these aren’t bugs. They’re features.
Every month, millions of Pakistanis open electricity bills padded with capacity charges for plants that don’t generate, subsidies that don’t reach intended recipients, technical losses that never improve, and regulatory costs that only climb. They’re told the system is complex, that contracts are sacrosanct, that reforms take time. Meanwhile, those who can afford it install solar panels to escape the grid, until new regulations close that exit too.
The weirdness of Pakistan’s electricity tariffs isn’t weird once you understand the incentive structure. It’s a system working exactly as designed, extracting maximum revenue from captive consumers while minimizing accountability for those who profit from dysfunction. Until citizens demand transparency, until journalists expose every hidden cost, until prosecutors investigate obvious malfeasance, the anomalies will persist. And so will the suffering of millions who simply want reliable, affordable electricity without being fleeced in the process. The lights may flicker across Pakistan, but the cash registers at IPPs, distribution companies, and regulatory offices hum along without interruption. That’s the real anomaly, and the real scandal nobody in power wants to address.