Why Are Electricity Bills So High in Pakistan in 2026?
The four numbers that make up your bill, and the one that explains everything else
By Asad Baig · Lahore · April 2026 · Approx. 5-min read
The four-component answer
Of every 100 rupees you pay on your Pakistani electricity bill, the breakdown is approximately:
- 40 rupees: Capacity payments to Independent Power Producers (IPPs)
- 25 rupees: Fuel costs
- 20 rupees: Transmission and distribution losses, including theft
- 15 rupees: Government taxes, surcharges, and DISCO operating costs
The 40 rupees is the largest component. It is also the component the public hears about least.
This article walks through each component, in plain English, and explains why one of them (the 40-rupee capacity payment) is responsible for most of the price difference between Pakistani electricity and the electricity available to Bangladeshi, Vietnamese, and Indian industries.
Component one: capacity payments (the 40 rupees)
Capacity payments are money paid to power plant owners for the existence of the plants, regardless of whether the plants produce electricity. I have written a full explainer at What Is Capacity Payment in Pakistan?.
The structure derives from take-or-pay clauses in the IPP contracts signed under the 1994 Power Policy and its successors. Pakistan has approximately 100 IPPs. The combined annual capacity payment obligation is approximately Rs. 2 trillion. That is more than the federal defence budget.
If capacity payments were eliminated entirely, the average household electricity bill would fall by approximately 60 percent. From around Rs. 48 per unit to approximately Rs. 19 per unit. This is the conclusion of the International Growth Centre's June 2025 work on the Pakistani power sector.
Sixty percent. Read that again. Sixty percent of your bill is for plant existence, not for the electricity you actually consume.
Component two: fuel costs (the 25 rupees)
Fuel costs are the actual cost of running the power plants that produce electricity. Imported coal, imported diesel, imported furnace oil, domestic Thar coal, gas. The cost varies with global commodity prices and exchange rates.
This component is largely outside Pakistani policy control. Global oil prices rise, fuel costs rise. The rupee falls, fuel costs rise. There is some marginal optimisation possible (better fuel sourcing, more efficient plants, fuel mix adjustments) but the headline number tracks international markets.
When the government promises "tariff reduction through fuel mix changes," they are talking about marginal adjustments to this 25-rupee component. The savings are real but small relative to the structural problem of capacity payments.
Component three: transmission and distribution losses (the 20 rupees)
Pakistani electricity that is generated does not all reach paying customers. A significant portion is lost in the network. The losses come from two sources.
Technical losses: Electricity that disappears as heat in old transformers, old transmission lines, and inefficient distribution equipment. These are physical losses that cannot be eliminated, only reduced through investment in newer infrastructure.
Commercial losses: Electricity that reaches customers but is not paid for. Theft, billing errors, uncollected bills. These are financial losses that can be addressed through better metering, enforcement, and DISCO management.
The combined T&D losses in Pakistan are approximately 20 percent of generated electricity. By international comparison, this is high. Bangladesh has reduced its T&D losses to under 10 percent over the past decade. The gap represents real Pakistani policy underperformance, but it is also a smaller component of total bills than the headline capacity payment problem.
Component four: taxes, surcharges, and DISCO costs (the 15 rupees)
Various federal and provincial taxes, plus distribution company operating costs, account for approximately 15 percent of the bill. These are politically visible (tax line items appear on bills explicitly) but mathematically secondary to the capacity payment driver.
The Bangladesh comparison
If you want to know why Pakistani electricity is so much more expensive than electricity in comparable Asian economies, the answer is in component one.
In 2026:
- Pakistani industries pay approximately Rs. 38 to 47 per unit
- Bangladeshi industries pay approximately Rs. 18 per unit
- Vietnamese industries pay approximately Rs. 15 per unit
- Indian industries pay approximately Rs. 22 per unit
Bangladesh, Vietnam, and India all have some version of fuel costs, T&D losses, and taxes. Their per-unit prices are lower because they did not commit themselves to the capacity payment structure that Pakistan adopted under the 1994 Power Policy and its successors.
Pakistan's textile industry has been hollowed out by this gap. In 2000, Pakistan and Bangladesh had roughly equivalent textile exports of $5 billion each. By 2024, Bangladesh exported $47 billion. Pakistan exported $16.5 billion. Bangladesh grew nine-fold. Pakistan grew three-fold. The difference is largely electricity tariff.
THE STRUCTURAL EXPLANATION
Pakistani electricity is approximately twice as expensive as Bangladeshi or Vietnamese electricity for the same industrial use. The gap is not from theft, fuel costs, or taxes (those are similar across countries). The gap is from capacity payments. Pakistan agreed to pay roughly 40 percent of every rupee in electricity bills to power plant owners under take-or-pay contracts. Bangladesh and Vietnam did not.
What you should take away
Three things.
Your Pakistani electricity bill is approximately 40 percent capacity payments, 25 percent fuel, 20 percent losses, 15 percent taxes.
The capacity payment component is the structural reason your bill is so high. Eliminating it would reduce the average bill by approximately 60 percent.
The capacity payment component is also the component the political process has been least willing to address. Five domestic IPPs terminated under Shehbaz Sharif. None of the CPEC plants. Most of the 100+ IPP fleet still operating under original take-or-pay terms.
If you want to reduce your individual bill, focus on consumption efficiency and solar (where the math still works in 2026). If you want to reduce bills for all Pakistanis, focus on political pressure for IPP reform.
Now you know why your bill is high. Pass it on.
Thank you for reading.
, Asad Baig, Lahore, April 2026
Frequently asked questions
Why are electricity bills so high in Pakistan in 2026? The single largest driver is capacity payments to IPPs, which account for approximately 40 percent of every rupee on a Pakistani bill. Other components are fuel (25%), transmission and distribution losses including theft (20%), and taxes (15%). Eliminating capacity payments would reduce average bills by approximately 60 percent.
Are Pakistani electricity bills more expensive than in other countries? Yes. Pakistani industries pay approximately Rs. 38-47 per unit. Bangladeshi industries pay approximately Rs. 18. Vietnamese industries pay approximately Rs. 15. Indian industries pay approximately Rs. 22. The gap is largely capacity payment driven.
Will Pakistani electricity bills come down soon? Not significantly without IPP capacity payment reform. The Shehbaz Sharif government has terminated five plants and renegotiated fourteen others, saving approximately Rs. 60 billion per year. Meaningful but modest against a Rs. 2 trillion problem. CPEC IPPs and most domestic IPPs remain on original terms.
Sources and notes
- IEEFA Reports on Pakistan Power Sector by Haneea Isaad (2024-2025)
- International Growth Centre, Sustainable Pakistan Growth Brief (June 2025)
- Power Sector Inquiry Report 2020 (ARY News mirror)
- APTMA position papers 2023-2025 (textile industry tariff comparisons)
- Pakistan Bureau of Statistics, textile export data 2000-2024
Related reading from Asad Baig
The pillar this answers under
Sibling long-tail explainers
- What Is Capacity Payment in Pakistan? A Beginner's Guide
- What Are IPPs in Pakistan? A Plain-English Explainer
- Why Is Pakistan Paying for Unused Electricity?
- Pakistan vs Bangladesh Electricity Tariff: A 2026 Side-by-Side
Asad Baig