Petroleum subsidy to end as power sector wins Rs830b in budget

Petroleum subsidy faces complete cut as power sector wins Rs830 billion. File photo

| Published June, 12 2026 | Updated

(Web Desk): Petroleum subsidy removal was proposed in Budget 2026-27 while Rs830 billion allocated for the power sector.

The move aims to improve fiscal discipline and reduce circular debt. The federal government has proposed major changes to its subsidy policy in the upcoming budget. The most significant proposal is the complete elimination of subsidies for the petroleum sector.

According to Budget 2026-27 documents, total subsidies for the power sector have been proposed at Rs830 billion. This is lower than the Rs893 billion allocated in the current fiscal year.

The government has proposed Rs252 billion to help address the circular debt issue. Another Rs248 billion is planned for Inter DISCOs tariff differential subsidy.

One of the notable changes is an increase in subsidy support for K-Electric. The proposed allocation for K-Electric tariff differential subsidy has been raised to Rs163 billion.

Also read: Budget 2026-27: One percent fixed tax scheme for shopkeepers proposed

For regional support, the government has recommended Rs81 billion for Azad Jammu and Kashmir. Another Rs34 billion has been proposed for the merged districts of Khyber Pakhtunkhwa.

The budget also includes Rs3 billion for agricultural tube wells in Balochistan. In addition, Rs48 billion may be allocated to the Pakistan Energy Revolving Fund.

The government has proposed Rs19 billion for wheat reserves and price differential support through PASSCO. Another Rs5.8 billion has been earmarked for the production and supply of urea fertiliser.

The subsidy of Rs8 billion for the electric vehicle scheme is proposed to remain unchanged. Meanwhile, Rs23.2 billion may be allocated to clear outstanding payments of the Utility Stores Corporation.

The most important policy shift is the complete withdrawal of petroleum sector subsidies. The government has also proposed ending the direct payment mechanism for Independent Power Producers (IPPs).

Officials say these measures are part of a broader strategy to strengthen financial discipline. The goal is to reduce long-term fiscal pressure and improve the energy sector’s sustainability.

The government appears focused on reducing financial burdens on the national budget. Cutting petroleum subsidies may save public funds, but it could also raise concerns about future fuel prices. The success of these reforms will depend on how effectively they balance savings with public relief.