Is increasing electricity rates a solution to the problems in Pakistan’s power sector? The World Bank’s resounding answer is no in its new report, ‘In the Dark: How Much Do Power Sector Distortions Cost South Asia.’ Expensive electricity will not solve the fiscal problems in Pakistan’s power sector. Instead, the World Bank believes that the country would do better if it were to prioritise improving tariff mechanisms and ensuring gas allocation to efficient power plants. The cost of an inefficient power sector to Pakistan’s economy is around $18 billion per year. This comes at around 6.5 percent of the country’s GDP. The World Bank claims that reforms could save the economy around $8.4 billion in business loses and increase household income by at least $4.5 billion per year. The report is surprising in that it criticises an approach that remains limited to merely liberalising energy prices – and recognises the distortions in Pakistan’s power sector lie much deeper. Instead, the report is bold in pointing out the limits of policy recommendations to Pakistan by the IMF, World Bank and the ADB, which all propose a single-step solution: increasing power tariffs.
Such an approach can only solve fiscal problems in the short term, but it does not offer a way out in the long term when the same issues which catch up. Instead, the report suggests that the cost of electricity must be kept down to encourage the growth of business and protect the poor and vulnerable. The report has also criticised the single-minded focus on the revenue side. Instead, it has suggested that the generation side is equally important. Moreover, it also asks questions about the severe limitations of Pakistan’s distribution grid. Around 20 percent of the country’s electricity production is lost here. While noting that Pakistan has expanded electricity access to more than 91 million people within two decades, the report notes the damage of electricity outages to business, health and living standards. Reliable and cheap electricity is an essential if the government wants to reduce the overall losses to the economy.
While the final recommendations of the report remain within the overall narrative of the World Bank and other developmental agencies, of supporting private power, the report is one of the more balanced ones to come out of the World Bank, and suggests a holistic approach to the power sector, which does not merely see it as a potential cash cow. The report insists that the power sector must be seen as an embedded part of the larger economy, where cheap and reliable electricity can be a boon for social and economic development. The PTI government seems to see increasing electricity and gas prices as one of its triumphs. Perhaps, someone needs to read this report for inspiration to revisit this approach.