Govt cuts power sector subsidy by 13 percent in FY 2025-26

ISLAMABAD: The federal government has reduced the power sector subsidy by 13%, bringing it down to Rs1.036 trillion for FY 2025-26 from Rs1.190 trillion in FY 2024-25.
Within the power sector, the subsidy allocated for the inter-Disco tariff differential has been reduced to Rs249.136 billion for FY 2025-26, down from Rs276 billion in FY 2024-25 — a decline of 9.8%. The subsidy for tariff differential on agricultural tubewells in Balochistan has been slashed to Rs4 billion from Rs9.5 billion in the previous year.
Subsidies for the merged districts of Khyber Pakhtunkhwa (erstwhile FATA) have also been cut significantly — by over 38% — to Rs40 billion from Rs65 billion. Similarly, the allocation for Azad Jammu and Kashmir (AJK) has been reduced by 31.5%, dropping to Rs74 billion from Rs108 billion.
The Pakistan Energy Resolving Fund (PERA) allocation remains unchanged at Rs48 billion for FY 2025-26, continuing monthly payments of Rs5 billion to Chinese Independent Power Producers (IPPs) operating under the China-Pakistan Economic Corridor (CPEC).
For K-Electric, the subsidy has been slashed by over 28%, down to Rs125 billion for FY 2025-26 from Rs174 billion in the previous fiscal year. However, the subsidy for agricultural tubewells in Balochistan has increased to Rs1 billion, up from Rs500 million in FY 2024-25.
The government has also allocated Rs95 billion for payments to IPPs in FY 2025-26, compared to Rs115 billion in the revised estimates for FY 2024-25 — a notable change, as no allocation had been made under this head at the time of the FY 2024-25 budget announcement.
A lump sum provision of Rs400 billion has been earmarked for power sector subsidies in FY 2025-26. This is slightly up from the revised estimate of Rs394 billion for FY 2024-25, but down significantly from the actual allocation of Rs509 billion in FY 2023-24. However, the purpose of this lump sum provision is not specified in the budget documents.
The subsidy for the petroleum sector has been drastically reduced to Rs1.2 billion for FY 2025-26, compared to a budgeted Rs18.4 billion in FY 2023-24. This entire amount is allocated to cover the shortfall in guaranteed throughput of PEPCO, which has also been cut in half — from Rs2.4 billion in FY 2024-25 to Rs1.2 billion this year.
No subsidy has been allocated in FY 2025-26 for shortfalls related to Asia Petroleum or domestic RLNG consumers via SNGPL. In comparison, Rs16 billion had been earmarked for these categories in FY 2024-25.