Some Key Facts Behind Pakistan’s Energy Crisis

July 25 Main Image

Pakistani Prime Minister Nawaz Sharif has implemented a new electricity subsidy for the poorest consumers in Pakistan. This subsidy covers all households with up to 300 units of electricity consumption which strikingly amounts to 68%. This subsidy points to underlying developmental and economic challenges for Pakistan.

The Woodrow Wilson Center, on of DC’s top think tanks, hosted a fascinating event on Wednesday about Pakistan’s energy crisis. This topic is both captivating and multi-dimensional as it touches on numerous geopolitical issues in this tumultuous region of the World. Indeed, Pakistan sits at the nexus of the Middle East and the South/South-East Asian basin. Both areas present their own unique geopolitical challenges, and Pakistan appears to be engulfed in all of them.

In many ways, solving Pakistan’s energy crisis will depend on the countries ability to navigate these challenges and the domestic pressures created by the lackluster energy market. The purpose of this article is to outline a few of the challenges presented during the conference that really highlight the obstacles Pakistan has to overcome.

The most notable presentation was by Musadik Malik, Pakistani Prime Minister Nawaz Sharif’s main adviser on energy issues. Malik outlined the three greatest problems facing Pakistan’s energy sector:

  1. High cost of production
  2. Distribution issues
  3. Low collection rates

In other words, electricity is too costly to produce, it can’t be sent to the consumer reliably, and when it is, the electricity is often stolen or unaccounted for. Clearly, this system needs some fundamental changes.

From Malik’s presentation, it seems pretty clear that the Sharif government is taking some serious steps to reduce this problem by making individuals more accountable. In particular, one major area of concern in Pakistan’s energy market was the uncontrolled subsidies that, in turn, generated a ‘circular debt’ of $5.6 billion. The government is tackling this problem by lifting nearly all the subsidies for commercial enterprises and refocusing on impoverished consumers.

As a result, the main priority for the government has been to extend subsidies to poor Pakistani’s in an effort to guarantee a basic level of development. Strikingly, 68% of Pakistani’s fall under this category which, as Malik explained, accounts for very limited electricity use. This fact is indicative of the developmental challenges still facing Pakistan. Yet, the renewed focus on providing affordable electricity to the poorest in Pakistan clearly shows that the government is on the right track.

This event was truly eye opening as it gave both the view from the government of the ongoing crisis as well as private sector analyses of the problem and solutions. Shannon Grewer, an energy consultant with EMI Advisors, emphatically stated that the Pakistani energy market is one where all investors can make a sizeable profit. If the types of reforms that Malik delineated are indeed correct, Pakistan seems set on the right course to fixing its energy crisis. I would invite everyone to check out the event page on the Wilson Center website to find out all the facts about this vital domestic and international issue. As usual, the Wilson Center truly put on an exceptional programmatic event!

For more on the statistic:

http://www.wilsoncenter.org/event/pakistans-interminable-energy-crisis-there-any-way-out#field_speakers

Other relevant links:

http://www.pc.gov.pk/hot%20links/2013/Final_USAID-Pakistan%20Circular%20Debt%20Report-Printed%20Mar%2025,%202013.pdf

http://www.nbr.org/downloads/pdfs/eta/Kugelman_commentary_03132013.pdf