London, Jan 20 (NationPress) The ongoing electricity crisis in Pakistan shows no signs of improvement despite numerous reform attempts. A recent evaluation by the power sector regulator highlights several issues, including increasing costs, stagnant demand, under-utilized capacity, and ongoing inefficiencies in transmission and distribution. The electricity system is currently hindering economic growth rather than facilitating it, as reported by various media outlets.

According to an article in The News International, without affordable and reliable electricity, Pakistan cannot industrialize, grow its manufacturing sector, or boost exports.

The article emphasizes that energy is not just a utility; it's a fundamental component of competitiveness. High electricity tariffs act as an implicit tax on industries, making it difficult for Pakistani exporters to compete in both regional and global markets.

No industrial policy, export incentive, or currency adjustment can effectively address the challenge posed by structurally high electricity costs, the article asserts.

Nonetheless, the prevailing policy response seems to focus primarily on changing ownership at the distribution level. The privatization of distribution companies is frequently touted as the missing reform that could unlock efficiency and accountability. However, this approach risks becoming a mere distraction from the deeper structural issues inherent in the system, the article warns.

In a system where tariff decisions are often influenced by political factors and payment discipline is lacking, it is challenging to attract private investors with the necessary financial strength to manage such assets at scale. Even if ownership changes hands, the fundamental economic issues would likely persist.

In many countries, electricity grids are either publicly owned or closely regulated monopolies. Efficiency improvements usually stem from governance, enforcement, and planning discipline rather than through outright privatization.

According to the article, efficiency arises from predictability and governance, not merely from changing ownership.

The core issue lies in the structure of generation contracts, where capacity payments have become the most significant burden on the system. Pakistan is now compensating power plants not based on electricity consumed but on their availability, irrespective of actual demand. Many plants operate below capacity while their fixed, dollar-denominated costs are fully charged to consumers. These contracts were established under the expectation of continuous demand growth and high utilization rates that have not materialized.

Projects financed through substantial bilateral and multilateral agreements have exacerbated this rigidity. While they rapidly increased capacity, they also locked the system into long-term take-or-pay commitments with limited flexibility. As the regulator has repeatedly indicated, this has resulted in a generation cost structure that dominates tariffs and leaves little room for relief elsewhere in the value chain, the article concluded.