Number of Downlaods: 24
Published Date: Dec 3, 2013
Introduction and Background
The Economic Survey of Pakistan notes that during 2011-12 around USD 4.8 billion or 2% of gross domestic product (GDP) was lost due to power sector outages. This is a major factor behind Pakistan’s disappointing economic performance over the past 5 years, with GDP growth averaging under 3% (GoP 2013).
The suppressed tariffs and distortions created by untargeted subsidies in power, oil and gas sectors have resulted in recurrence of circular debt, political intervention in decisions regarding sector-specific allocation of fuel and breach of autonomy of regulatory authorities. Furthermore the multiplication of players at the government level, currently dealing with the energy governance, has also prevented serious private sector investors in taking any interest towards investing in a sector exhibiting growing demand and supply gap.
Pakistan traditionally relied on abundance of indigenous gas to generate a major chunk of its electric power. These gas supplies have long been provided to consumers at less than economic cost (Box 1). Even if the gas had to be subsidized there is little economic logic in giving preference to sectors already posting substantial profits e.g. fertilizer, cement and transport.1 The realization that subsidized gas supplies to transport should be reduced given this sector’s already dominant share in oil consumption is very recent. This comes when gas shortages have led to closure of over 10000 production units (since 2009) in industrial and services sector and affected over a million jobs.
Between 1994 and 2012 we see that household sector has seen the largest increase in percentage share in electricity consumption. While to some extent this is attributed to growing population and increased electrification of peri-urban and rural areas, a key economic force behind this trend has again been artificially induced lower tariffs for household consumers vis-à-vis commodity producing or commercial services sectors of the economy (Tariq et al. 2009).