In a recent tweet, Pakistani-American economist Atif Mian highlighted the disparity between the current electricity prices in Pakistan and their true market value.
Mian pointed out that electricity in Pakistan is being sold at approximately 21 cents per kWh (around Rs. 60 per unit), making it one of the highest rates globally. He argued that the true market price should not exceed 8-9 cents per kWh (Rs. 22-25 per unit), drawing comparisons with neighboring India.
Mian criticized the government’s failure to acknowledge the power sector’s bankruptcy, attributing it to systemic issues that have persisted for over three decades.
He stated that the government is sustaining this failing sector by transferring its exorbitant costs to ordinary citizens, which in turn harms the broader economy, as energy is a fundamental input across various sectors.
He proposed that, ideally, these struggling power companies should be declared bankrupt and undergo corporate reorganization to align their value with the true market value.
However, he also added that this process is complicated by past governments’ decisions to provide sovereign guarantees to these private companies, further entrenching the sector’s issues.
Mian advocated for pricing electricity at a fair market rate to prevent economic distortion. He suggested separating the power sector into viable assets that can be maintained at a fair price and non-viable assets that require restructuring, privatization, or absorption of their losses into the government balance sheet.
To address the losses of non-viable assets, Mian recommended more efficient financial strategies, such as reducing government expenditure, encouraging provinces to run larger surpluses, and eliminating tax subsidies for military and civilian officers on property sales.
He also suggested that increasing the petroleum levy could be a more sensible approach, as it would accelerate the transition to renewable energy, which he views as essential for Pakistan’s future.
Mian concluded by urging a change in power sector policies to prevent further economic damage and to address the root causes of the current crisis.
