Fixing power sector before it sinks the economy

Pakistan’s power sector has transformed from an essential utility into a systemic liability. Instead of powering growth, it is dragging down the economy—one policy distortion, inefficiency, and fiscal bailout at a time. We are now at a critical juncture.

Our response to surplus expensive electricity, rising capacity payments, and fiscal pressure has been to penalize industrial self-generation, discourage solar energy, and impose indirect fuel taxes to subsidize electricity tariffs. These are not solutions – they are symptoms of deeper failure. Unless Pakistan decisively reforms its power sector, it risks killing the national grid by its own burden – and taking other sectors with it.

Gas pricing as a weapon:

In a move that illustrates the extent of policy distortion are recently increased gas prices for captive power generation to Rs 4,291 per MMBTU, effective March 7, 2025. This includes a new levy of Rs 791 per MMBTU, and further hikes will raise this to Rs 6,000 per MMBTU by August 2026. The intent is clear: push industries back onto the national grid by making self-generation via gas unaffordable.

This is not market correction; it is coercion. Instead of making grid power competitive through reform, we are rendering industrial alternatives unviable through artificial pricing. In doing so, we’re undermining competitiveness in textiles, cement, and export sectors, all while forcing them back into an inefficient system they escaped from for good reason.

Solar policy reversal:

At a time when the world is incentivizing decentralized renewable energy, we are doing the opposite. In March 2025, the Economic Coordination Committee (ECC) approved drastic revisions to the net metering framework. The purchase price for excess solar electricity was slashed from Rs 27 to Rs 10 per unit. Net metering is being replaced by gross metering, and GST is now being levied on self-consumed solar power.

This decision, driven by pressure from an overbuilt, underutilized grid, has made rooftop solar unattractive. Payback periods for installations have increased from 3-4 years to over a decade. It will likely stall adoption just as solar generation had reached promising levels – over 226,000 net-metering consumers as of October 2024 and a projected 4,124 MW installed capacity by end-2024.

It is irrational to penalize households and businesses investing in clean, cheap electricity because the grid can’t adapt. Rather than modernizing, we are dragging everyone back into the same inefficient, centralized system.

Fuel consumers paying the price:

As fiscal space shrinks, the government is reportedly considering an increase in the Petroleum Levy (PL) – already maxed out at Rs 60 per litre – to cross-subsidize electricity tariffs. Instead of passing on the benefit of falling global oil prices to the public, we are contemplating using fuel taxation to bail out the power sector. This is economically unsound and socially regressive. It penalizes sectors like agriculture and logistics while protecting inefficient utilities. It also fuels inflation and undermines economic productivity across the board.

A grid that can’t carry itself:

The core issue remains unresolved: the national grid is bloated, inefficient, and fiscally unsustainable. T&D losses remain at an average 16.5%, with several DISCOs like PESCO and SEPCO reporting losses above 35%. Capacity payments have crossed Rs 2 trillion, and circular debt stands above Rs 2.4 trillion as of end-2024. This system cannot survive by punishing solar users, industrial gas consumers, or fuel buyers. It needs structural reform – and urgently.

The way forward:

First, the single-buyer model must be dismantled. A competitive electricity market should be introduced, where DISCOs, private generators, and consumers can buy and sell power freely. This will bring transparency, improve efficiency, and enable investment in modern systems.

Second, ATC losses must be reduced through installing smart metering, improved billing recovery, and DISCO management reforms. Outsourcing or privatization of high-loss DISCOs should be on the table.

Third, rebalance the fuel mix for power generation. Over 60% of our electricity is produced from imported fuels – RLNG, coal, and furnace oil – making the system fragile, costly, and inflation-prone. Pakistan must accelerate investment in local renewables and indigenous resources.

Fourth, we must immediately take measures to adopt WACOG (Weighted Average of Cost of Gas) at the national level to offer a mixed price of local and imported gas to consumers like captive industry who have the appetite and the need to buy the WACOG-based gas. We can use the forum of SIFC (Special Investment Facilitation Council) to steer this much-needed reform to save our gas infrastructure in the country.

Lastly, policy coherence is essential. Consumers and businesses who adopt solar or self-generation are not adversaries; they are part of the solution. Policies must enable, not punish, decentralization and innovation.

Conclusion:

The power sector is not just underperforming; it is actively undermining Pakistan’s economy. If we do not reform it now, we will continue to pay the price through stifled growth, fiscal distortions, and declining competitiveness. Reforms are no longer optional. They are the only path forward.

Copyright Business Recorder, 2025