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NEPRA revises base tariff down by PkR1.50/kwh for FY26: NEPRA has approved the uniform base electricity tariff for FY26 across all XWDISCOs and K-Electric, following the Federal Government’s motion of the NEPRA Act. The new tariff reflects a consolidated revenue requirement of PkR3.52tn, down PkR247bn YoY, with a resultant reduction of PkR1.50/kWh in the average base tariff. This decline is primarily attributed to a PkR212bn YoY drop in the Power Purchase Price (PPP), led by PkR186bn decline (-ve PkR1.34) in capacity charges and PkR36bn (-ve 0.07/kWh), respectively. To ensure tariff uniformity, targeted subsidy of PkR249bn will be provided by the Government to offset inter-DISCO tariff rationalization. Furthermore, the revised schedule incorporates PYA of PkR58.7bn (PkR0.38/kWh), which is to be recovered over the coming twelve months. Overall, the national base tariff is determined at PkR34/kWh for FY26, down by 4%YoY compared to PkR35.5/kWh in FY25.

GoP pushes ahead with multi-pronged circular debt restructuring; medium-term relief in sight
The GoP has accelerated its power sector reform agenda, anchoring efforts on a PkR1.25tn commercial bank borrowing facility to reduce the mounting circular debt, which was reported at PkR2.4tn as per Mar’24 data. This refinancing agreement is planned at a competitive ~KIBOR– 0.5%, will replace high-cost PHPL borrowings (KIBOR+2%) and IPP payables carrying LPS of 4%, delivering estimated annual savings of PkR220bn as per authorities. Key disbursements include retirement of PkR683bn PHPL liabilities, PkR280bn for nuclear plants, and PkR220bn for RLNG IPPs, with remaining PkR720bn addressed through renegotiated IPP terms and waivers to state-owned hydel plants. Importantly, this refinancing allows for a revised surcharge (~PkR3.3/kWh) to fully cover both principal and interest repayments, compared to the prior levy which only funded interest costs. This restructuring, alongside targeted fiscal allocations (PkR250bn in FY26 budget), sets the stage for gradual easing in the sector’s liquidity stress.

Structural reforms and captive diversion to improve tariff outlook
Beyond debt restructuring, the GoP is also pursuing long-term cost rationalization through premature retirement and tariff renegotiation of selected IPPs. These efforts have resultantly meaningfully borne fruit in GoP efforts to reduce end-consumer tariffs and limit future capacity payments. Notably, with grid tariffs anticipated to decline to ~PkR33/kwh (ex-PHPL surcharge and GST), we expect a significant shift by industrial captive users towards the national grid. Captive generation costs—furnace oil (PkR39/kwh), natural gas (PkR41.8/kwh), and RLNG (PkR35.5/kwh)—are likely to become uncompetitive, thereby setting the stage for broader diversion to the grid. For this reason, we anticipate average tariffs to remain unmoved over the medium term due to: i) economic activity-led power demand growth, ii) diversion of captive power to the grid, boosting overall demand, iii) continued reduction in KIBOR/LIBOR, lowering future capacity costs, iv) GoP’s intensified efforts to curb pilferage losses. Additionally, proceeds from privatization coupled with continued disbursements through budgeted subsidies are expected to further pare down the accumulated circular debt stock.

 

Investment Perspective: Overall, continued watering down of power circular debt would be beneficial for companies under our coverage space, namely: OGDC, PPL and PSO, while also enhancing receivable recoverability for the listed gas-distribution companies i.e. SNGP and SSGC. limited due to accounting treatment of LPS. Overall, the execution of this debt re-profiling plan marks a significant step toward restoring sector sustainability, though execution risks remain.

 

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