EDITORIAL: The energy sector as a whole is in total disarray. The government and regulators are failing to take the most critical sector out of the mess, especially the electricity sector.
The government’s sole focus is on protecting the National Transmission and Distribution Co. (NTDC) grid and, in the process, has brought the gas sector to the brink of default. The result is simple. The high cost of electricity, amid levies imposed on other avenues, is resulting in a shrinking manufacturing sector, as 10 out of 22 LSM subsectors are performing (worse than 10 years ago) below their capacity.
The latest fiasco is power regulator Nepra’s reversal of K-Electric’s multi-year tariff — and it’s absurd. The regulator spent 18 months determining the tariff, going through an extensive evaluation and consultation process before announcing it. Then came the backlash in the media.
Under pressure, and at the behest of the power division, the regulator virtually reversed its own order and drastically revised the granted increase in tariff. The question is if the earlier process truly involved rigour, as claimed, then why the sudden U-turn? And what is the legal basis for taking suo motu action on its own decision?
These are pressing questions that demand answers and raise serious concerns about the regulator’s autonomy, credibility and capacity. This is bad news not only for foreign investors but also for local players in the power sector. Pakistan already faces a high political risk, and now regulatory or institutional risk is being added to the mix.
Such uncertainty will only weaken investor confidence and hurt the prospects for future investment in the energy sector. It is important to note that contrary to the general perception, the relief in the tariff, cumulatively amounting to Rs7 per unit, is not going to have a positive impact on consumers in Karachi, as the tariff is uniform across the country. The consumer may even pay more, as the tariffs determined the previous year are being revised.
That’s just one example — and it’s a serious blow to Karachi’s manufacturing sector. The idea of a uniform tariff is counter-productive. There’s surplus supply in the South at a lower marginal cost, but supply constraints prevent this power from reaching the North, where household demand is higher. The government should introduce a marginal pricing policy and encourage greater consumption in the South by effectively lowering tariffs for industrial consumers.
The application of a higher levy on captive power plants has deprived the gas sector of its best-paying consumers. This has exacerbated the problem of cost recovery in the gas sector, increasing gas circular debt. And the irony is that a good chunk of those consumers is not moving towards the grid, which is still expensive and unreliable.
Policy consistency is another problem. There is a trust deficit between the regulator and consumers, and between the Ministry of Energy and consumers.
The government realises that energy pricing and availability are critical to both local and foreign investors. However, illogical decisions are sending the wrong message across the board, which will kill the industry and drive investors away from the manufacturing sector, confining the economy to trade and services that might not be enough to put us on a sustainable growth path and create employment for the bulging numbers of our youth.
Copyright Business Recorder, 2025
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