In a setback to Pakistan’s efforts to support industrial growth, the International Monetary Fund has declined a proposed discounted energy package put forth by the Ministry of Energy, sources familiar with the matter confirmed on Friday.

The proposed plan intended to offer cheaper electricity derived from surplus national generation capacity — estimated at 8,000 megawatts — to priority sectors such as artificial intelligence, data centers, and large-scale manufacturing.

Designed as a three-year incentive scheme, the package aimed to calculate power rates based on marginal cost, removing several fiscal layers from the final consumer price. Under the draft, industries would have paid only the generation and capacity charges, with exemptions from general sales tax, fuel adjustment surcharges, and other levies.

Despite these intentions, the IMF rejected the proposal, primarily due to the government’s ongoing challenges in achieving full recovery of billed amounts within the energy sector. The Fund reiterated its position that subsidies or incentives should be contingent upon 100 percent revenue recovery to prevent fiscal slippages.

Sources in the energy ministry say that negotiations are not over, and a revised plan will be tabled in the upcoming phase of economic review talks. Pakistan’s energy sector has long struggled with inefficiencies, circular debt, and poor recovery rates — issues the IMF has repeatedly flagged as high-risk.

For now, industries hoping for relief through the use of idle power infrastructure may have to wait until the government aligns its fiscal recovery mechanism with the lender’s strict criteria.