Pakistan’s power sector has entered another decisive round of structural reform. Tariff rationalisation, fixed charges tied to authorised load, and subsidy restructuring, reinforced by the International Monetary Fund’s (IMF) call to replace the existing tariff differential and cross-subsidy regime with targeted support for low-income consumers by 2027, are now at the centre of the policy debate.

The direction is fiscally necessary, but its success will depend on whether the policymakers can distinguish genuine vulnerability from shifting consumption patterns and tariff distortions, and design relief around actual energy poverty.

That remains the central weakness in the present reform approach. The country still lacks a formal national definition of energy poverty, turning what is essentially a multidimensional deprivation into a narrow billing classification problem. As a result, subsidy design continues to misread vulnerability, even though millions face it daily through unaffordable bills and unreliable supply that place pressure on wellbeing and living standards.

Policy continues to rely heavily on consumption slabs to determine eligibility, even though electricity use is an unreliable indicator of need. Low consumption often reflects hidden deprivation, when households suppress essential use because they cannot afford it.

Pakistan needs to shift from using electricity consumption as a proxy to using energy poverty as the guiding principle for policy design

At the same time, crossing 200 units in peak summer does not necessarily signal higher income; for many households, it simply reflects the need to run basic cooling appliances in extreme heat. In such cases, higher consumption is not a mark of affluence but of survival pressure. This is where current reform logic drifts away from social reality.

The problem is wider than unaffordable bills. Some households remain off-grid, some depend on persistently unreliable supply, and many others suppress essential consumption because they cannot afford adequate cooling, lighting, or basic energy services. Energy poverty is therefore multidimensional in nature: it is shaped not only by access, but also by affordability, reliability, energy efficiency, housing conditions, and whether households can secure adequate energy services without sacrificing other essential needs.

This challenge becomes even more serious in summer, when heat, poor housing, unreliable supply, and rising bills turn electricity from a utility into a basic survival need. Pakistan’s summers are no longer episodic stress events; they are a recurring energy crisis. As heatwaves intensify and last longer, electricity becomes essential for health, productivity, and survival. Yet the tariff system still treats higher summer consumption as evidence of reduced need, pushing many lower-middle-income households into unaffordable slabs. In effect, climate-driven demand is being treated as excess consumption.

There is no doubt that the present subsidy architecture is already visibly under strain. The number of protected and lifeline consumers has expanded from around 9.4 million to 21.5m in recent years, reflecting design weaknesses and the gradual widening of eligibility thresholds over time.

At the same time, the evolving energy transition is reshaping demand patterns in ways slab-based systems cannot capture. Rapid uptake of rooftop solar is lowering recorded grid consumption among relatively better-off households, while multiple-meter arrangements are increasingly used to remain within subsidised thresholds. Together, these trends are weakening the integrity of consumption as a proxy for vulnerability.

As a result, electricity usage is no longer a reliable measure of need. Some solar-equipped behind-the-meter households continue to benefit from subsidised categories due to reduced net grid consumption, while fully grid-dependent lower-middle-income households absorb a rising share of fixed system costs through higher tariffs.

This is not just inefficiency; it is a structural redistribution of burden away from exit-capable consumers and toward those fully locked into the grid system. Collectively, these trends are eroding cost recovery, deepening inefficiencies, and increasing reliance on cross-subsidies, placing a disproportionate burden on non-protected consumers and weakening industrial competitiveness and investment.

That is why the shift towards targeted subsidies is necessary but alone insufficient. While the IMF-supported move toward income-based targeting through the National Socio-Economic Registry may identify income poverty, it does not fully capture energy poverty. Households may fall outside welfare databases yet still experience severe energy deprivation or appear eligible while facing markedly different energy burdens shaped by climate exposure, housing conditions, household size, appliance efficiency, and supply reliability.

Energy poverty is not a fixed condition but a function of geography, infrastructure, and climate stress interacting with income. Reducing it to a single registry or consumption threshold creates systematic targeting errors and fails to distinguish between short-term affordability needs and deeper structural exclusion, where the core issue is access to reliable electricity rather than tariff relief.

Therefore, the country requires a more comprehensive framework. First, energy poverty must be formally defined through multidimensional indicators capturing affordability, access, reliability, housing energy efficiency and climate exposure.

Second, subsidy design should treat Benazir Income Support Programme as one input rather than the sole targeting mechanism, while also recognising off-grid households and those facing persistently unreliable supply as part of the energy-poor population.

Third, tariff reform, particularly fixed charges related to authorised load, should apply principles sensitive to vulnerability. This will ensure that low-income or low-middle-income consumers who are fully dependent on the grid do not bear the system’s fixed costs disproportionately. Finally, subsidy reform must be integrated with efficiency and climate adaptation, since low-income households face the highest exposure to heat, inefficiency, and price volatility.

Undoubtedly, subsidy reform is necessary to move away from blanket slabs toward vulnerability-based targeting, protecting actual energy-poor households while improving fiscal sustainability and restoring industrial competitiveness. However, poorly targeted implementation can turn current subsidy restructuring into fiscal stress, inefficiency, and rising system losses.

At its core, the challenge is one of definitional clarity: Pakistan needs to shift from using electricity consumption as a proxy to using energy poverty as the guiding principle for policy design. Without this shift, subsidies will remain either fiscally unsustainable or socially mistargeted.

Mohammad Aslam Uqaili is an energy expert and senior energy researcher based in Jamshoro. Shafqat Hussain Memon is an energy researcher based in Jamshoro. He can be reached at

hussainshafqat.memon@gmail.com

Published in Dawn, The Business and Finance Weekly, June 29th, 2026