IN recent years, soaring energy prices have drastically impacted Pakistan’s economic growth potential in general, and its industrial productivity and exports in particular by raising production costs and reducing international competitiveness. Now a new report by the International Energy Agency shows that power tariffs for energy-intensive industries in Pakistan averaged 13.5 cents per kilowatt-hour in 2024, surpassing those in other economies, including both regional competitors and major trading partners. The report states that industrial electricity prices in 2024 stood at 6.3 cents per kWh in the US and India, 7.7 cents in China, and 11.5 cents in the EU. In Norway, a key European market, rates were as low as 4.7 cents per kWh. This means that our industrial sector is paying almost double the electricity prices compared to China, India, and the US, and 18pc higher than the EU.

Indeed, the adverse impact of higher electricity costs for energy-intensive industries was largely offset previously by lower labour rates and subsidised export finance, as well as energy subsidies and other incentives for the export industries by the government. Nevertheless, the situation is changing fast now, with energy, export finance, and other subsidies either being eliminated or significantly reduced under IMF pressure. This is adversely impacting the country’s export competitiveness in global markets. Hence, the growing demand for a substantial reduction in energy rates for export-oriented industries. This is something that will not be possible for a cash-starved government to meet, unless it implements deep power sector reforms involving the creation of a competitive energy market, reduction in electricity theft and system losses of around 30pc, the restructuring and sale of distribution companies, and so on. Additionally, the government will have to cut reliance on imported fossil fuel, and effectively harness its enormous, cheaper renewable solar and wind energy resources. So far the movement in this direction has been very slow, notwithstanding the authorities’ claims otherwise.

Published in Dawn, March 7th, 2025