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$4.5bn income loss due to unreliable power access grossly understated: WB

Updated September 30, 2018

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Villagers relax on a farm outside Sheikhupura next to their panels. Official estimate based on household surveys suggests that about 5 million people remained off-grid in 2016.—file photo
Villagers relax on a farm outside Sheikhupura next to their panels. Official estimate based on household surveys suggests that about 5 million people remained off-grid in 2016.—file photo

ISLAMABAD: The net income loss from lack of reliable access to electricity for households in Pakistan has been conservatively estimated at $4.5 billion a year which is about 1.7 per cent of GDP, a new World Bank study notes.

This estimate is likely to grossly understate the actual loss because it does not capture the impact of lack of reliable access to electricity on health and education outcomes and because access rates could be much lower than the officially reported 97.5pc.

These results suggest that increasing reliable access to electricity would yield huge gains. Pakistan could do so by both continuing to expand the electric grid and by developing alternatives to grid electricity, especially given that Pakistan has large potential for renewable energy from wind, solar, and hydro power.

The study, ‘Electrification and Household Welfare’ presents the first empirical evidence on the benefits of reliable electricity on households in Pakistan, and it used a two-stage propensity score — weighted fixed-effects model to control for unobserved village — and individual-specific effects that may simultaneously affect electrification status and the welfare outcomes of interest.

The results show that electrification is associated with a broad range of social and economic benefits in Pakistan, including income and expenditure, better health outcomes for children, improved school enrollment and school completion for boys (but not girls), and increased women’s labour force participation and decision-making power.

There is also evidence that electrification increases women’s decision-making power. In households gaining access to electricity, the probability of women making their own decisions rose by 16.3 percentage points for decisions on purchasing food items, 9.5 percentage points for decisions on purchases of clothing and shoes, 2.6 percentage points for decisions on education, and 1.7 percentage point for decisions on employment.

Reducing power shortages in the country requires adopting energy sector reforms to address inefficiencies in the allocation and distribution of natural gas, increasing fuel efficiency in electricity generation, reducing losses in the transmission and distribution of electricity, and correcting pricing problems in the electricity market, another report says.

There is no consensus on the access rate of electricity in Pakistan; official estimate based on household surveys suggests that about 5 million people remained off-grid in 2016. Data from the 2017 census and utility connections lead to an estimate that is almost 10 times as high: almost 50 million people (36pc of the population).

Based on the more conservative figure of 5 million, connecting the entire off-grid population would raise income by $565m a year. Based on the higher figure, the annual income gain could reach $5.7bn. Improving the reliability of electricity supply would add to these gains.

Anecdotal evidence suggests that power cuts have been reduced over the past few years, thanks to additions of generation capacity and low global oil prices. Lacking official estimates of load-shedding hours, the analysis assumes that average load shedding was reduced to six hours a day in fiscal year 2015. With an estimated income loss of 1.6pc associated with every hour of daily outage, rural households would reap another $3.9bn in annual income gains if electricity were provided twenty-four hours a week.

Pakistan has made remarkable progress in connecting its towns and villages to the electric grid over the past few decades.

The Global Tracking Framework report issued jointly by the World Bank and the International Energy Agency ranked Pakistan fourth in the world in terms of the number of people who gained access to electricity between 1990 and 2010 after India, China, and Indonesia. Over this period, roughly 91 million people in Pakistan received electrical services for the first time.

Published in Dawn, September 30th, 2018