Pakistan plans to cut power subsidies, increase tariffs for commercial and private consumers and promote coal generation as it seeks within five years to end blackouts that are hurting economic growth.
Prime Minister Nawaz Sharif won a general election in May partly based on his promise to end a record energy crisis which the Planning Commission estimates sliced 2 percentage points off expansion in the year to June 2012, shutting factories and spurring social unrest. At its peak, the shortfall between demand and supply tops 5,500 megawatts.
“Pakistan has a terribly inefficient power generation and distribution system,” Power Minister Khawaja Asif told reporters today in Islamabad. “The new policy will try to fix these inefficiencies by attracting new investments.”
The policy will end the supply-demand gap within five years as the country seeks investment to build dams and shifts the energy mix to cheaper sources of generation, including coal, Asif said. Consumers using more than 200 units of electricity per month will face a higher tariff, he said, adding that businesses will be charged more from August.
The government also plans to reform laws dealing with power theft, making it a non-bailable offense, and regulate retailers’ business hours to reduce consumption, Asif said. It paid down 480 billion rupees ($4.7 billion) of so-called circular debt this month in a bid to increase generation. The debt refers to money owed to power companies from unpaid bills.
“The government is moving in the right direction,” said Zoya Ahmed, a Karachi-based analyst with BMA Capital Management. “The problem of circular debt will pretty much be solved if an increase in tariff actually takes place.”
Pakistan this month agreed with the International Monetary Fund on a $5.3 billion loan program as its reserves plunged and the rupee fell to a record low. The IMF has asked Pakistan to ensure policy changes, including energy reforms, are under way when the board considers the program in September to help convince it the nation is “committed,” Pakistan mission head Jeffrey Franks said on July 4.
Sharif is aiming for 4.4 percent economic expansion in the fiscal year that started July 1, up from from an estimated 3.6 percent in the 12 months ended June 30.