Addressing the economic progress - Decentralizing energy sector in Pakistan!



The reasons behind Pakistan’s lack of economic progress can be traced to various components including, political uncertainty, law and order situation, business-friendly environment, low market demand, and trade barriers. However, one important factor that equally impedes economic progress but is often overlooked, the power sector.

Several regional benchmark economies can be used for comparison with Pakistan’s economy; India and Bangladesh being the traditional regional competitive benchmarks. Compared to Bangladesh, Pakistan’s biggest export (Textile) was dropped to just over 9% in 2014, whereas, in a similar year Bangladesh’s textile exports gained 14.5%. Similarly, various international and national industries were forced to shut-down and relocate their operations in neighboring countries and due to power shortages.

Competitive, and consistent electricity supply plays a crucial role to attract foreign investment, as well as, assist in the development of local industries. Access to consistent and affordable electricity is even more important for a country like Pakistan, whose neighboring countries offer one of the cheapest electricity in the world (USD 0.12 KWh for India, and USD 0.09 KWh for Bangladesh). In comparison, Pakistan’s electricity rates stand at USD 0.13 KWh, and to make matters worse, there are serious reliability issues.

To be able to make up for the deficiencies in the power sector, it’s important to look at the modeling of the power sector in our neighboring countries. Bangladesh for once has implemented a credible power sector model that has earned the praise of the Asian Development Bank. The model adopted by Bangladesh is simply to decentralize and open up the sector for private investors. While the step was heavily criticized during the implementation phase, it nonetheless greatly benefitted the economy of the country; pushing it up from just over USD 100 billion to USD 274 billion in a decade.

A similar approach can be traced in the Indian power sector, which’s even more comparable to Pakistan’s sector. Just like the power sector in Pakistan, the Indian power sector also faced grave distributional challenges; mainly due to the centralized approach. However, the country in collaboration with World Bank addressed various challenges by opening up participation to private sectors and improving transparency. As a result, India was greatly improved its ranking in the World Bank’s Ease of doing business – “Getting Electricity” (jumping from 137th position in 2014 to 24th position in 2018). In the same period, the country was able to lower the energy deficit from 4.2% in 2014 to 0.7% in 2018.

Coming to Pakistan’s power sector, the country in past has experimented with multiple models and policies; most of which were relatively successful. However, the inconsistencies in pursuing the policies due to ideological differences of successive governments have greatly reduced any long-term benefit for the country. For instance, Pakistan opened its energy sector to private investors back in the 1990s to address the energy crises. The initiative resulted in the addition of 4,500 MW of energy in the national grid by an independent power producer. It also attracted around USD 5 billion in foreign investment, while transforming Pakistan into a net energy exporter. However, as mentioned earlier, the success and benefits of the initiative were short-lived; mainly due to government regulations.

At present, Pakistan’s power situation is stable. However, that’s mainly contributed to the massive Chinese investment in the sector to ensure the success of the CPEC project. The CPEC project intends to contribute up to 17,000 MW of electricity to the national grid, with the hopes to decrease the cost of electricity, and increase industrial productivity to support the expansion of exports.

While CPEC based energy production will definitely improve the energy security in the country, most of these projects are thermal energy generation projects (coal-based), which will increase the GHG emissions in the country. At a time when the world is increasingly moving towards renewable energy, high GHG emissions from these projects will stain the country’s profile in the international arena as a polluter. Also, while the projects will help Pakistan to beef up its industrial muscles; based on cheap and reliable electricity, they won’t address the underpinning issues including power theft, power losses, policy hurdles, and bureaucratic obstacles.

It’s important to realize that the key problems impeding the energy sector in the country include management issues, corruption, and a non-transparent supply chain system. The vicious circle of energy supply including the government’s Central Power Purchase Agency (CPPA) buying electricity from independent and state-owned energy generation companies (GENCOs), and subsequently selling them to the state-owned energy distribution companies (DISCOs) needs to be improved. That’s because failure on part of one of the players results in the total collapse of the system, and is one of the prime culprits for ever-increasing circular debt in the power sector.

At a time when the power sector circular debt has increased to billions of dollars, the government and policy makers need to come up with a new and smart energy policy, which should include deregulating the power generation companies. This will eventually help power generating companies to achieve market price level without government interference. Decentralization of the power sector will also help curb the genie of corruption and electricity theft while increasing the redemption of electricity bills.

Decentralization of the power sector will also help the power sector to hold government workers accountable for the mismanagement, and inefficiencies. Also, it will help lower the transmission losses; as private companies would invest generously to improve the energy infrastructure in the country.

To sum up, it’s high time to realize the pressing issues in the power sector which have been hindering the economic stability of the country. While the sector is often overlooked due to other issues, it’s a prime culprit that has jeopardized the national security, job market, and foreign policy of the country. There’s an increasing need for the policymakers and stakeholders to come up with a detailed, sustainable, and long-term fix for the energy sector that can address the underpinning issues and help drive the country towards a brighter future.