Pakistan Business Council Shares Solutions for The Power Sector

Market-determined exchange rates, revisions in the price of petrol and diesel, and increases in energy tariffs are being implemented belatedly and jacking up inflation to record levels. According to the Pakistan Business Council’s “Minimum Consensus on Key Economic Reforms” report, Pakistan suffers from the highest electricity costs in the region. By penalizing industrial consumers with the cost of inefficiencies and theft, their competitiveness and capacity to create employment and generate exports are impeded. Whilst five export sectors are provided power at rates competitive with comparable countries, the rest of industry, including import substitution sectors and many SMEs, in the value-chain but not direct exporters, continue to be impacted. High tariffs for electricity also reduce the incentive for domestic users to switch out of the less efficient but underpriced gas, reserves of which are depleting rapidly. Tariffs for industry and commerce are also encumbered by cross-subsidies to residential and lifeline users. To make matters worse, there is substantial reliance on imported fuel, the transmission system is inadequate to maximize the use of indigenous fuel, and is there a rail link to transport coal from Thar. The grid is also fragile and in need of investment. The salient effects of a sub-optimal power sector on the economy are: The PBC report says the objective of reforms is to reduce import reliance on fuel, make power more competitive by addressing the inefficiencies in transmission and distribution and make transmission more stable and reliable. The PBC says things like market-determined exchange rates, revisions in the price of petrol and diesel, and increases in energy tariffs are being implemented belatedly and which caused inflation in January to clock in at 27.6 percent, the highest in 47 years. This will push more into poverty, cause more lay-offs by businesses affected by import restrictions, and “will threaten street agitation” if political parties don’t put the country over party interests and resolve to fix the economy.