Pakistan incurs $17.7bln power sector losses

KARACHI: Power sector’s inefficiencies cost the Pakistan’s economy $17.7 billion (6.5 percent of GDP) during the fiscal year of 2014/15, a World Bank’s report said on Wednesday, underscoring the need of reforms to overcome distortions.

“The full cost of distortions in the power sector is far greater than previously estimated on the basis of fiscal cost alone,” the report, titled ‘In the Dark: How Much Do Power Sector Distortions Cost South Asia’, said. “Some of the largest costs are upstream or downstream, making the case for a stronger prioritisation of power sector reform.” World Bank Country Director for Pakistan Illango Patchamuthu said the country can boost economic growth and job creation by overcoming inefficiencies in its power sector.

“Reforms that address these distortions can make better use of existing facilities,” Patchamuthu said in a statement. “These need to focus on eliminating waste, promoting the shift towards cleaner energy and attracting private investments.”

The bank’s report said the total losses in annual output attributable to power shortages amounted $8.4 billion in fiscal 2015 in manufacturing and services combined.

“In Pakistan, where capacity growth lags GDP growth, only 80 percent of available capacity was operational in fiscal 2014. Losses in transmission and distribution add to the shortages,” it added. “Pakistan loses about a quarter of electricity in the network for both technical and commercial reasons, well above the 10 percent international norm.”

Official estimates said 99 percent of the population in the country has an access to grid electricity, but estimates based on census data and the number of connections reported by utilities suggest that access to grid electricity was only about 74 percent in 2016 and up to 35 percent of the population may still live off the grid.

“In Pakistan, hefty losses of electricity in distribution, along with poor recovery of overdue electricity bills, have given rise to alarming levels of debt in the sector and prompted repeated government bailouts,” the World Bank’s report, authored by senior economist Fan Zhang said.

The report said the country has a two-tier gas market. “Imported liquified natural gas is broadly charged at the full cost to consumers, but domestic gas was priced at roughly 36 percent of the international benchmark in fiscal 2016.” The World Bank’s report said several large gas development projects have been abandoned in Pakistan “because of the government’s unwillingness to raise tariffs to allow cost recovery with reasonable returns”.

“In Pakistan shortages of gas for power generation were made up through expensive imported oil, increasing both electricity costs and trade bills.”

On climate change, the report said South Asia already experiences some of the greatest warming effects of black carbon emissions from residential kerosene lighting.

“The annual environmental cost of black carbon emissions from kerosene lighting is estimated at… $2.1 million in Pakistan.”

The report further said the impact of the lack of reliable access to electricity on households and firms is the largest source, costing roughly $12.9 billion a year (4.8 percent of GDP) in Pakistan.