Muneeb ur Rehman

Pakistan should move towards a market-based, deregulated system of energy production and transmission, as the government’s excessive footprint in the energy sector is causing efficiency losses, Tauseef Farooqi, former chairman of National Electric Power Regulatory Authority (NEPRA), told WealthPK. “Pakistan’s energy sector has many ills, mainly attributed to excessive regulation, that cumulatively impacts the economy in an adverse manner. The first and foremost issue is the mounting circular debt that stems from the government’s excessive involvement in the sector. It occurs when the government subsidizes energy costs but doesn’t fully reimburse power generation companies and distributors, leading to a growing debt cycle,” he said. According to the Power Division, circular debt stands at Rs2.31 trillion which was recorded at Rs2.25 trillion in the previous fiscal year.

“Government subsidies on energy, such as those on electricity and fuel, have become a significant burden on the national budget. Amidst the economic challenges, the government might not be able to sustain the culture of hefty subsidies to the power sector,” he asserted. Referring to the recent negotiations with the IMF on the power sector losses, Tauseef said, “The IMF is convinced that the energy sector losses can only be reduced by increasing the tariff rates. The last government, however, increased the electricity prices twice by over Rs15 per unit to Rs50 a unit since July last year. However, despite this substantial increase, the government may still miss the target of reducing the losses by Rs962 billion.” Apart from highlighting the issues, he also underscored the possible solutions. “Deregulation will reduce the circular debt issue by allowing the energy companies to set prices reflecting the market conditions.

This will reduce the need for government subsidies and ensure that the power generation companies (GENCOs) and distribution companies (DISCOs) are paid timely for their services.” Tauseef said deregulation will make the energy sector more attractive to private investors in Pakistan. Private companies are often more willing to invest in infrastructure development and modernization, which can lead to increased energy generation capacity, he added. Concluding, he said that excessive government involvement in the energy sector gives rise to many challenges. The need of the hour is to deregulate the energy sector.

Credit: INP-WealthPk