Pakistan’s ‘zombie power sector sucking the blood out of healthy firms’: Atif Mian

Renowned economist Atif Mian likened Pakistan’s entire power sector to a “zombie” that is “sucking the blood out of the rest of the economy”.

In a post on X, formerly known as Twitter, the Pakistani-American economist, currently a professor of Economics, Public Policy, and Finance at Princeton University, detailed how the country’s power sector fits the description of ‘zombie firms’—companies that are fundamentally insolvent yet kept alive through external subsidies.

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“In simpler words, the cost of running these firms far exceeds what these firms can generate as revenue from fair market – yet they are kept alive through artificial life support.

“Zombie firms come straight from a horror movie – they stay alive by sucking the blood of healthy firms in the economy, killing more firms in the process,” elaborated the economist.

He emphasised that Pakistan’s power sector has burdened the economy with high electricity costs while still running at a loss.

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“The proof is simple: 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,” said Atif.

Citing the example of neighbouring India, he said the true market price of electricity should not be more than 8-9 cents per kWh. “But the government is charging an exorbitant price in order to keep the zombie alive.

“In essence, Pakistan’s government refuses to recognise that its power sector is bankrupt – itself the 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,” he said.

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Atif MIan was of the view that in an ideal world, these zombie power companies would be declared bankrupt and forced to go through a corporate reorganisation, 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),” he said.

“For now, let’s take these sins of the past as given, and ask the question: what should be done with this zombie sector that is currently unsustainable?

“The answer is the same we teach students in econ 101, do not fall for sunk cost fallacy,” he said.

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

The economist called for seeking 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 lead Pakistan to this zombie apocalypse in the first place,” he concluded.

The remarks come at a time when Pakistan’s energy sector is under intense scrutiny due to significant tariff hikes and the unresolved circular debt crisis.