REFORMING THE ENERGY SECTOR IN PAKISTAN

ISLAMABAD, July 3, 2024 /PRNewswire/ —

REFORMING THE ENERGY SECTOR IN PAKISTAN

Pakistan’s power sector faces a myriad of serious and complex problems, from poor governance to delayed decision-making and lack of economic growth. These challenges have led to inefficiencies that are embedded in the price of electricity, affecting household incomes and making export-oriented businesses uncompetitive.

Solving inefficiencies and rising costs

The constant rise in electricity prices is fuelling inflation and becoming a political issue, especially during the high-consumption months of June to August. The government has initiated a cost-cutting policy by using local fuel instead of imported fuel, which has helped reduce the cost of generating electricity over the years.

Change of customs duties and social protection

The tariff change, which takes place every June, sets the expected tariff for the next fiscal year. This year, after the new tariff is set, the expected increase is less than 2% month-on-month for 16.8 million protected consumers (58% of all domestic consumers). For unprotected consumers, the increase is an average of 9%. Importantly, as the economy improves, electricity tariffs are expected to fall. By January 2025, an average reduction of 3% is expected compared to June 2024.

Industry growth and efficiency

The government has lowered industrial tariffs to encourage more production and employment. This support is crucial to catalyzing economic growth. The Ministry of Energy is also working with the World Bank to privatize distribution companies (DISCOS) to improve operational efficiency, reduce losses and combat electricity theft. This privatization is expected to bring investment and expertise, making the power sector more efficient.

Improving the energy mix and reducing costs

Pakistan’s energy mix includes more than half of its electricity generation from low-carbon sources such as hydropower, nuclear power and renewable energy sources. The cost of generating electricity from these sources is much lower than from imported fuels. For example, the fuel cost of generating electricity is Rs 10.9 per kWh, which reduces to Rs 9 per kWh in summer due to hydropower. However, power costs have increased to Rs 18.4 per kWh due to the addition of new capacity, which supports future growth.

Transmission and distribution improvements

The government is addressing transmission and distribution inefficiencies through infrastructure investments. Building infrastructure to overcome North-South transmission constraints is a priority, as cheaper energy produced in the South cannot be used due to these constraints, resulting in significant losses. A decentralized tube well solarization program is also being implemented to reduce agricultural losses and improve the country’s carbon footprint.

Market-oriented reforms and sustainable growth

The government is committed to market-based pricing mechanisms and reducing the carbon footprint. The solar strategy aims to encourage widespread use of solar energy without compromising grid stability. The energy sector reform program includes eliminating inefficiencies, encouraging productivity growth and supporting industrial growth.

Future perspectives

The government is focused on creating a sustainable energy sector that supports economic growth. By addressing inefficiencies, improving infrastructure, and implementing market-oriented reforms, the energy sector can become a catalyst for industrial growth and economic stability in Pakistan.