Pakistan Business Council Suggests Measures to Reduce Electricity Costs and Boost Forex Savings

Pakistan Business Council Suggests Measures to Reduce Electricity Costs and Boost Forex Savings

Karachi, October 2, 2023 – Pakistan Business Council (PBC) has put forth a comprehensive set of recommendations to the government to alleviate country’s soaring electricity costs and enhance foreign exchange savings.

In a detailed paper authored by the PBC, the council highlights that Pakistan currently grapples with the highest electricity costs in the region. This issue has hampered the competitiveness of the country’s industries, its ability to generate employment, and its capacity to bolster exports. The burden stems from a variety of factors, including unutilized generation capacity, inefficiencies in transmission, theft, non-recovery of payments, and cross-subsidies to residential consumers.

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The council points out that the high electricity tariffs incentivize theft and discourage domestic users from transitioning to more efficient, underpriced, and sustainable alternatives, such as natural gas. Furthermore, Pakistan heavily relies on imported fuels for power generation, and its transmission system inadequately utilizes cheaper sources of renewable and coal power, particularly from the southern regions of the country.

To address these pressing concerns, the PBC outlines several key recommendations:

Reduce Transmission and Distribution Losses: The council suggests lowering Transmission and Distribution (T&D) losses among distribution companies (DISCOs) to meet the target set by the National Electric Power Regulatory Authority (NEPRA). Achieving an immediate 2% improvement in T&D and 3% in recovery could lead to annual savings of approximately Rs. 175 billion.

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Restructure Chinese IPP Debt: The PBC proposes renegotiating the terms of Chinese debt to Independent Power Producers (IPPs). Currently, 17 power projects with approximately 11,000 MW of dependable generation capacity are funded by Chinese debt. Converting this debt into a Government-to-Government (G2G) loan at a concessionary rate of 2% per annum could save $1.7 billion annually in foreign exchange payments.

Enhance Industrial Competitiveness: The council recommends reducing the industrial tariff from Rs. 37 per unit to a regional average of 9 cents per unit to stimulate job creation, exports, and tax revenue while reducing import dependence. This reduction in tariff would cost around Rs. 180 billion but would be partially offset by increased demand and other economic benefits.

Expedite South-to-North Transmission: To fully utilize low-cost power plants in the south, the PBC suggests resolving transmission constraints. By doing so, it could lead to an annual saving of approximately Rs. 265 billion by switching to cheaper fuels in the northern regions.

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Price Incremental Power in Winter Months: Incentivizing the use of electricity over gas for domestic appliances during winter months could generate additional revenue, further optimizing capacity usage. This could potentially yield an annual revenue of Rs. 17.5 billion.

Convert Imported Coal Projects to Thar Coal: By converting imported coal projects to locally sourced Thar coal, Pakistan could reduce foreign exchange outflows and lower tariffs. Two options are presented: 20% blending and full conversion. The former could result in annual savings of $185 million on coal, while the latter could save $915 million per annum.

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These recommendations, if implemented, hold the promise of reducing Pakistan’s electricity costs, enhancing competitiveness, and strengthening the country’s foreign exchange reserves. The Pakistan Business Council remains optimistic that these measures will contribute to the country’s economic growth and sustainability.

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