Pakistan’s Electricity Prices Among World’s Highest, Yet Sector Faces Losses: Atif Mian

The true market price of electricity in Pakistan should not cost more than 8-9 cents per kWh (Rs. 22-25 per unit) compared to the current price of 21 cents per kWh (~Rs. 60 per unit), Pakistani-American economist Atif Mian said in a tweet on Thursday.

“Pakistan is selling electricity at one of the highest prices in the world, about 21 cents per kWh (with taxes), and yet the sector as a whole runs in a loss. The true market price of electricity should not be more than 8-9 cents per kWh (just look at neighboring India),” he tweeted.

Mian said the government refuses to recognize that its power sector is bankrupt as a result of a broken nervous system over the past three decades. The government is keeping this bankrupt zombie sector alive by passing on its extremely high cost to ordinary citizens. Since energy is a fundamental input to practically every other sector of the economy, passing on the buck through higher electricity prices ends up seriously damaging the rest of the economy as well.

In an ideal world, these zombie power companies would be declared bankrupt and forced to go through a corporate reorganization, writing down the value of bad debt until the total value of these power companies reflects their true market value. Unfortunately, this cannot be done that easily because governments of the past, in their infinite wisdom, gave sovereign guarantees to these bloated private companies (that’s why I keep saying that Pakistan’s nervous system is broken).

Mian called for pricing electricity at its fair efficient market price so the rest of the economy is not distorted. “Separate the power sector into good assets that can be sustained at a fair price, and bad assets that either have to be restructured through a legal process, privatized or their losses put on the general government balance sheet,” he suggested.

He said, Think about more efficient ways to pay for the losses of the bad assets, rather than adding them as additional cost per kWh. For example, cut government expenditure, ask provinces to run a larger surplus (rather than give away free solar panels which makes the zombie problem worse), remove tax subsidies for military and civilian officers on property sales, etc”.

“Even adding to petroleum levy to pay for the bad assets would be more sensible – it would hasten the renewable electrification transition that is the only viable future for Pakistan. And of course, change the power sector policies that led Pakistan to this zombie apocalypse in the first place,” he concluded.