Pakistan’s electricity is expensive not because the grid is poorly run, though it often is, but because the country built a power system for an economy that never arrived, financed it on contracts that force everyone to pay whether or not they use the power, and has spent thirty years pushing the cost forward instead of confronting it.

Pull out your last bill and look at the total. If your household uses around 400 units a month, you are paying close to Rs16,000. Less than half of that is for the electricity you use. The rest pays for idle power plants, debt built up because someone upstream did not pay their share, and charges added over the years to plug holes the system kept opening.

Start with the number that explains everything else. Pakistan has 46,600 megawatts of installed capacity, and according to the National Electric Power Regulatory Authority’s own data, it used only about a third of that in FY24. Two out of every three megawatts the country built simply sat there. Peak demand rarely goes past 35,000 MW, so every month we pay for power nobody needs. Capacity grew 64 per cent between 2013 and 2024 because planners and investors bet on a manufacturing boom and a fast-growing middle class that never fully showed up.

The reason this keeps getting worse instead of fading away is buried in the contracts themselves. Power producers are paid two ways: a fixed amount just for existing, and a separate amount for whatever they generate. That made sense in the 1990s, when the state had no money to build plants and investors needed a guarantee before risking their own. What nobody accounted for was a rupee that would lose more than 60pc of its value while these obligations stayed tied to the dollar. In FY24 alone, consumers paid Rs46 billion to two plants that produced no power at all. At Rousch Power, the fixed payment alone came to over seven hundred rupees a unit, roughly eighteen times what electricity itself was worth.

Peak demand rarely goes past 35,000 MW when installed capacity is 46,600 MW, so every month we pay for power nobody needs

Then there is a problem that grew almost by accident. Rooftop solar went from about 500 megawatts in 2022 to over five gigawatts by early 2025, as households watched their tariffs climb 155pc in three years and finally had enough. Pakistan imported more solar panels last year than any other country in the world.

For any one household, that choice makes complete sense. But the fixed bills on the grid do not shrink just because fewer people are paying them. The same cost spread over a smaller group, prices rise for whoever is left, and more people leave. The government itself estimates this shifted close to Rs159bn onto grid-connected households in a single year, the very people who could not afford solar panels to begin with. A system meant to serve the public is quietly taxing the poor to fund an exit only the well-off can take.

Industry has felt this hardest. Pakistani factories pay between 13 and 15 cents per unit, roughly double what factories in India, Bangladesh, or Vietnam pay. All Pakistan Textile Mills Association says over 140 mills have shut down nationally, most of them in Punjab. Industrial electricity use dropped from 34bn units in FY22 to 28bn in FY24. Factories did not get more efficient. They got smaller, or they closed.

Credit where it is due, the reforms since late 2023 are the most serious this sector has seen in years. Six ageing, expensive plants had their contracts terminated, and 14 more were renegotiated. Circular debt fell by Rs780bn in one year. But talk to the people paying the bills and a different picture emerges.

The Federation of Pakistan Chambers of Commerce and Industry says no industrial consumer has ever received the promised rate of Rs22.98 a unit; bills are still landing at Rs34 or Rs35. The plants that got renegotiated were the oldest and weakest, because those were the only ones anyone could touch. Nuclear and hydro plants still absorb 44pc of all capacity payments, and China-Pakistan Economic Corridor-era coal plants take another 19pc, both protected by guarantees nobody can renegotiate around.

This is the trap Pakistan cannot seem to break out of. Industry needs cheaper power to recover. Power gets cheaper only once the capacity crisis is solved. Solving it needs either far more demand or a much smaller contracted fleet. And demand only grows once industry has already recovered. No single actor can fix this alone, and every reform so far has worked at the edge of the problem, not at its centre.

What would move the needle is not a mystery. Sell off the distribution companies so someone has a real reason to stop the losses. Convert the remaining fixed payment contracts into ones that pay only for power used. Retire the stranded plants for good instead of leaving them on the books. Build new renewable capacity on contracts investors can trust will not be torn up the moment politics shifts.

Until then, the consumer keeps paying the gap every month, on a bill they were never given the tools to understand, for power they did not use, to cover promises they never made. The least the state can offer in return is an honest explanation of how that bill got built in the first place.

The writer is a research assistant at the IBA School of Business Studies and a CFA Level I passed candidate.

Published in Dawn, The Business and Finance Weekly, October 5th, 2026