Power sector discrepancies

The World Bank report on the state of energy sector in South Asia has given many reasons to the policymakers and the international financial institutions to ponder. More than 250 million people still live without electricity in the region and one-fifth of them in Pakistan. The report also tries to quantify the damages, primarily stemming from the sector’s bad governance. Lack of sustainability in supply of electricity is impeding growth in a region that hosts highest numbers of poor living anywhere in the world. For the first time, a comprehensive report has attempted to cover the whole supply chain from upstream to core and downstream and put a figure on top of that.

The cost of inefficiencies in the power sector to Pakistan’s economy has been estimated at $18 billion or 6.5% of the GDP in 2015. This is a staggering figure for a country whose share of per capita GDP as percentage of regional GDP is on decline. Reforms in the power sector could boost business profits by $8.4 billion a year. Not only that the total household incomes, according to the report, can increase by at least $4.5 billion a year. All this gives reasons to the policymakers to give priority to the energy sector. We see some enthusiasm in the PTI government that has prioritized the sector but a lot has to be done by improving the sector’s governance. The PML-N government also did its bit and addressed the sector’s supply side constraints.

There is also a message for the lenders, including the World Bank, in the report. The report acknowledges a long-contested fact that reforms must go beyond liberalising energy prices to address several aspects of the power-sector distortions. For the past many years, the lenders have been giving more emphasis to increasing the electricity tariffs than any other aspect. This has led to a situation in Pakistan where the cost of electricity is probably the highest in the region, making the industries uncompetitive. The increasing electricity prices have also negatively impacted the poor. Prime Minister’s Task Force on Energy should give a consideration to the report and give it an ownership by including the proposals that can address the sector’s chronic problems.