Knowledge Note

Pakistan’s energy sector is facing a serious crisis. Key challenges include large and growing shortages of energy, high energy costs, and inefficiencies that pre - vent the sector from financing all its costs. It there - fore relies heavily on government support, through subsidies and funding for almost its entire investment program. Specific actions to overcome the dire situation can be classified along three main lines. The first are actions to overcome the investment deficit, which requires least-cost investment plans based on low-cost supply sources (notably hydropower), market competition, more efficient energy use, and incentives to manage consumer demand. Second, steps to improve sector finances are needed. Key actions include modifications to the current universal national tariff, cost recovering tariffs, allocating additional gas for power generation, and improving utilities’ operational and commercial performance. Third, to improve sector governance, managerial autonomy and accountability needs to be introduced in power utilities. Performance contracts or other tools for monitoring and improving the performance of the public utilities—for example, outsourcing management, leasing, sale of shares along with management control, and privatization— should be considered, and the approach deemed most appropriate should be introduced. The problems and potential solutions to the recovery of the Pakistan energy sector are all well known. What is needed now is leadership and a road map of sustained actions.

About the Presenters

Rashid Aziz