Energy Sector Reform in Pakistan

AMINA JADOON

Pakistan’s power sector is plagued by complex and serious problems, including poor governance, delayed decisions, and stagnant economic growth. These difficulties have led to inefficiencies that affect household incomes while making local and export-oriented businesses uncompetitive. Such inefficiencies are now reflected in the price of electricity and the convoluted nature of Pakistan’s power sector.

Due to high demand between June and August each year, the increase in electricity prices causes a lot of political noise and volatility. To address this, the government has initiated policies to reduce costs by using domestic fuels instead of foreign ones, which results in lower costs associated with generating electricity. Expected tariff adjustments for the current fiscal year 2024-2025, which took place in June, will help determine tariff changes next year. The new tariff adjustments for the 16.8 million protected consumers (domestic) reflect an increase of less than 2%. For non-protected consumers, the increase is an average of 9%. In addition, lower electricity rates are expected as the economy strengthens and capacity costs are spread across a larger consumption base to reduce tariffs across the board. By January 2025, an average reduction of 3% in electricity tariffs is expected compared to June 2024.

The Pakistan government has also reduced industrial tariffs to promote growth in manufacturing through industrial units and create employment opportunities. This support is essential to boost the economy. The Ministry of Energy is working with the World Bank to privatize distribution companies (DISCOs) to improve operational efficiency and reduce power theft and circular debt. This privatization will help attract capital and improve efficiency in the power sector. The government is investing in infrastructure to overcome inefficiencies in power transmission and distribution. Priority will be given to setting up infrastructure to ease North-South transmission constraints as cheaper power generated in the South cannot be used elsewhere due to such constraints. A decentralized tube well solarization program is also being implemented to reduce agricultural losses and reduce carbon footprint.

The government’s priorities include reducing carbon dioxide emissions and implementing a competitive pricing system. The solar strategy aims to encourage widespread use of solar energy without compromising grid stability. The main components of the energy sector reforms are increasing production, eliminating inefficiencies and promoting industrial growth.

More than half of Pakistan’s electricity is generated from low-carbon sources such as nuclear, renewable and hydropower. The cost of production using these sources is more affordable compared to imported fuels. For example, the fuel cost for generating electricity is Rs 10.9 per kWh, but due to hydropower it comes down to Rs 9 per kWh in summer. The government aims to ensure and develop a sustainable energy industry that promotes economic expansion and stability. Implementation of these market-oriented reforms and infrastructure improvements in the energy industry will not only reduce inefficiencies but will also be a driving force for Pakistan’s industrial progress.

— Amina Jadoon is a freelance writer.