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September 21, 2018

Pakistanis lose $4.5 billion/year in net income on patchy electricity access: WB


September 21, 2018

KARACHI: Pakistani households lose an immense $4.5 billion or 1.7 percent of GDP in net income every year due to the lack of reliable access to electricity, the World Bank said, underscoring the need of energy sector reforms to address inefficiencies.

“This estimate is likely to grossly understate the actual loss, because it does not capture the impact of lack of reliable access to electricity on health and education outcomes and because access rates could be much lower than the officially reported 97.5 percent,” the World Bank said in a latest report.

The bank noted the discrepancy in access rates of electricity in the country, provided by various official accounts.

The official estimate based on household surveys suggests that about five million people remained off-grid in 2016, while data from the 2017 census and utility connections lead to an estimate that is almost 10 times as high: almost 50 million people – 36 percent of the population.

“Based on the more conservative figure of 5 million, connecting the entire off-grid population would raise income by $565 million a year,” the World Bank said in the report based on a study titled “Electrification and Household Welfare: Evidence from Pakistan”.

“Based on the higher figure, the annual income gain could reach $5.7 billion,” it added. “Improving the reliability of electricity supply would add to these gains.”

This study was based on data from two household surveys: Pakistan Social and Living Standard Measurement 2007/08 and 2010 and Lighting Pakistan program of the International Finance Corporation in 2014.

The World Bank said an hour of daily outage results in an estimated income loss of 1.6 percent, while “rural households would reap another $3.9 billion annual income gains if electricity were provided 24/7”.

The World Bank, citing 2014 Household Integrated Economic Survey, said the average rural household earned Rs26,452 ($253) a month.

The bank said electrification has a significant positive impact on households’ income and expenditure. Gaining access to electricity is associated with a 37 percent increase in per capita income and an 11 percent increase in expenditure (15 percent for food, nine percent for nonfood).

“With estimated average income gains of 37 percent a year, the increase in monthly household income would be about Rs9,787 ($93),” it said. “Assuming the marginal cost associated with electricity generation and transmission is about Rs12.2 ($0.12) per kWh (kilowatt hour), annual average per capita electricity consumption is 471 kWh, and the average household includes 6.7 people, the net per capita gain from gaining access to electricity is estimated at Rs11,782 ($113) a year.”

The World Bank said connecting to electricity is also associated with better health outcomes, probably as a result of access to electronic media that improves knowledge of hygiene and healthy lifestyles and the reduction in indoor air pollution from the reduced use of kerosene.

While the World Bank said all the benefits from expanding and improving electricity supply cannot be quantified in monetary terms “the potential gains in income growth alone are substantial”.

The World Bank found that lack of reliable access to electricity cost the economy an estimated $5.8 billion — 2.6 percent of GDP — a year.

The World Bank advised the government to expand the electricity grid and develop alternatives to grid electricity, “especially given that Pakistan has large potential for renewable energy from wind, solar, and hydropower”.

The bank also underscored needs of energy sector reforms to address inefficiencies in the allocation and distribution of natural gas, fuel efficiency in electricity generation, reducing losses in the transmission and distribution of electricity, and correcting pricing problems in the electricity market. “Addressing the problem requires energy sector reforms to correct regulatory and institutional distortions in the gas and electricity sectors,” it said.

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