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Renowned economist Atif Mian likened Pakistan’s entire power sector to a “zombie” that is “sucking the blood out of the rest of the economy”.

In a post on X, formerly known as Twitter, the Pakistani-American economist, currently a professor of Economics, Public Policy, and Finance at Princeton University, detailed how the country’s power sector fits the description of ‘zombie firms’—companies that are fundamentally insolvent yet kept alive through external subsidies.

Last two years worse in Pakistan’s economic history: Atif Mian

“In simpler words, the cost of running these firms far exceeds what these firms can generate as revenue from fair market – yet they are kept alive through artificial life support.

“Zombie firms come straight from a horror movie – they stay alive by sucking the blood of healthy firms in the economy, killing more firms in the process,” elaborated the economist.

He emphasised that Pakistan’s power sector has burdened the economy with high electricity costs while still running at a loss.

Pakistan’s economic crisis is largely due to its power sector: experts propose bypassing govt

“The proof is simple: Pakistan is selling electricity at one of the highest prices in the world, about 21 cents per kWh (with taxes), and yet the sector as a whole runs in a loss,” said Atif.

Citing the example of neighbouring India, he said the true market price of electricity should not be more than 8-9 cents per kWh. “But the government is charging an exorbitant price in order to keep the zombie alive.

“In essence, Pakistan’s government refuses to recognise that its power sector is bankrupt – itself the result of a broken nervous system over the past three decades. The government is keeping this bankrupt zombie sector alive by passing on its extremely high cost to ordinary citizens.

“Since energy is a fundamental input to practically every other sector of the economy, passing on the buck through higher electricity prices ends up seriously damaging the rest of the economy as well,” he said.

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Atif MIan was of the view that in an ideal world, these zombie power companies would be declared bankrupt and forced to go through a corporate reorganisation, writing down the value of bad debt until the total value of these power companies reflects their true market value.

“Unfortunately, this cannot be done that easily because governments of the past, in their infinite wisdom, gave sovereign guarantees to these bloated private companies (that’s why I keep saying that Pakistan’s nervous system is broken),” he said.

“For now, let’s take these sins of the past as given, and ask the question: what should be done with this zombie sector that is currently unsustainable?

“The answer is the same we teach students in econ 101, do not fall for sunk cost fallacy,” he said.

“Price electricity at its fair efficient market price so you do not distort the rest of the economy. Separate the power sector into good assets that can be sustained at fair price, and bad assets that either have to be restructured through a legal process, privatized or their losses put on general government balance sheet,” he said.

The economist called for seeking more efficient ways to pay for the losses of the bad assets, rather than adding them as additional cost per kWh.

“For example, cut government expenditure, ask provinces to run a larger surplus (rather than give away free solar panels which makes the zombie problem worse), remove tax subsidies for military and civilian officers on property sales, etc.

“Even adding to petroleum levy to pay for the bad assets would be more sensible - it would hasten the renewable electrification transition that is the only viable future for Pakistan. And of course change the power sector policies that lead Pakistan to this zombie apocalypse in the first place,” he concluded.

The remarks come at a time when Pakistan’s energy sector is under intense scrutiny due to significant tariff hikes and the unresolved circular debt crisis.

Comments

200 characters
ENGR Hamid Shafiq Aug 22, 2024 11:13am
Too much advises some times zero output better to work from small issues then work on big issues. currently if govt privatize the loss making SOE its a big shift in economy
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Zia Ullah Khan Aug 22, 2024 11:54am
Accepting Atif Mian proposal will mean acknowledging that 1994, 2002 and 2013 IPP policies were abinitio wrong. These were devised by current setup of PPP, ME and PMLN respectively. A tough call.
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Danish Ahmad Aug 22, 2024 12:11pm
Privatization of PIA, WAPDA, Railway and steel Mill are dire need of the day. These organizations are financed through regressive taxation and ultimately these firms will make people and govt bankrupt
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Power Master Aug 22, 2024 01:33pm
Privatize means criminalize
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HashBrown® Aug 22, 2024 03:46pm
The poor professor is offering technical advice to a government that has no technical competence whatsoever. Imagine trying to explain how to change a car tyre to a toddler...
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NotSurprised Aug 22, 2024 04:18pm
The public loves these kind of statements as it shifts the blame from the huge number of power thieves to the Govt. First stop theft above all. Too many Pakistanis are thieves.
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Super moon Aug 22, 2024 07:18pm
He stated a fact. Those who did these foolish agreement are still in power, why would they repeal these agreements ? Sovereign guarantees will ensure status quo.
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Ash Chak Aug 22, 2024 07:25pm
Fruits of CPEC?
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Re=== Aug 22, 2024 08:33pm
If CPEC Phase 1 primarily addressed power sector woes, then why pay world's highest electricity prices? Because the capacity payment and interest payment to iron brother China (sweeter than honey)
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Re=== Aug 22, 2024 08:35pm
For China, the CPEC power plant capacity payment, overbilled project costs, high interest rates are sweeter than honey and taller than the Himalayas. Only an iron-brother would pay. Not regular people
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Rebirth Aug 22, 2024 08:50pm
Supercomputers built for mind control (torture) and ChatGPT are draining the power sector in the US, leading to load-shedding and forcing consumers to pay higher utility bills. Is he aware of this?
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Test Aug 22, 2024 11:02pm
@ENGR Hamid Shafiq , govt cannot privatize loss making Disco they are privatizing iesco,fesco,mepco,lesco. other disco have too many loses . you need buyer who will buy disco with loss of 100 billion.
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Test Aug 22, 2024 11:05pm
Atif mian gives example of neighboring countries why he doesn't give example of ireland where price is 47 cents. does ireland also does corruption. few villages don't have electricity.you can sell it.
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Sovereign31 Aug 23, 2024 04:28am
@Test, the price of electricity in Ireland may be 47 cents. but the income per capita of ireland is 101,000 USD. Roughly 75 times that of Pakistan.
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alliabsolutions Aug 23, 2024 10:39am
@NotSurprised, Thats correct. Theft of Electricity is going on at very high level in Industry where the power passes to the industry outside of the meters.
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Test Aug 23, 2024 04:26pm
@Sovereign31, per capital doesn't decrease prices of imported coal and furnace oil .
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Khurram Aug 23, 2024 07:05pm
He give words to my thoughts
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