REFORMING THE POWER SECTOR IN PAKISTAN

ISLAMABAD, July 3, 2024 /PRNewswire/ — 

REFORMING THE POWER SECTOR IN PAKISTAN

The power sector in Pakistan faces a myriad of serious and complex issues, ranging from bad governance to delays in decision-making and lack of economic growth. These challenges have led to inefficiencies that are embedded in the price of electricity, impacting household incomes and making export-oriented businesses uncompetitive.

Addressing Inefficiencies and Rising Costs

The continuous rise in electricity prices fuels inflation and becomes a political issue, especially during high consumption months from June to August. The government has initiated policies to decrease costs by using local fuel instead of imported fuel, which has helped reduce the electricity generation cost over the years.

Tariff Rebasing and Social Protection

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

Industrial Growth and Efficiency

The government has reduced industrial tariffs to encourage increased production and employment. This support is crucial for catalyzing economic growth. The Ministry of Power is also working with the World Bank to privatize Distribution Companies (DISCOS) to improve operational efficiencies, reduce losses, and counter electricity theft. This privatization is expected to bring in investment and expertise, enhancing the power sector’s performance.

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 hydel, nuclear, and renewables. The cost of generating electricity from these sources is significantly lower than from imported fuels. For instance, the fuel cost of electricity generation is Rs 10.9 per kWh, which reduces to Rs 9 per kWh during summer due to hydel power. However, capacity 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 bridge the North-South transmission constraint is a priority, as cheaper power produced in the South cannot be used due to these constraints, causing significant losses. A decentralized tubewell 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-oriented pricing mechanisms and reducing the carbon footprint. The solar strategy aims to incentivize widespread adoption of solar energy without compromising grid stability. The power sector’s reform agenda includes eliminating inefficiencies, encouraging productivity gains, and fostering industrial growth.

Future Outlook

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

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SOURCE Analysts, MoIB Pakistan