The document summarizes Pakistan's energy sector challenges and proposes reforms. It notes that energy demand has grown 80% but the mix relies heavily on depleting gas and imported oil. This puts pressure on gas and power sectors due to unrealistic pricing, inefficiencies and low cost recovery. If unaddressed, energy imports may rise from 30% to 75% by 2025, costing the economy $35 billion and 1.4 million jobs. The document proposes three reform areas: 1) improving energy governance through regulatory independence and professional management, 2) rationalizing energy pricing by phasing out subsidies and ensuring full cost recovery, and 3) limiting government's role to policy and planning while enabling private sector investment. It also discusses

1. Political Economy of Energy Sector
Reforms in Pakistan
Dr. Vaqar Ahmed
Sustainable Development Policy Institute
20th December 2012
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2. Outline
• Situation Analysis
• Energy Governance
• Solutions Available
• Implementation
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3. Situation Analysis
• Primary energy consumption has grown by almost 80 percent
• Energy mix skewed in favor of depleting gas and imported oil
• Pressures on gas sector
• Growing demand by residential, commercial, industrial, transport and
power sectors
• Low and government controlled gas prices
• Indigenous natural gas reserves declining
• Under business as usual scenario energy import requirements
may grow by present 30 percent to 75 percent by 2025.
• Pressures on government controlled power sector
• Unrealistic power tariff
• High inefficiencies
• Low payment recovery
• Untargeted subsidies (in turn resulting in circular debt) 3

4. Cost of Not Taking ACTION
• Impact of Energy Crisis on Pakistan’s:
– Economy: Additional USD 35 billion investment
needed to meet next 5 year’s demand
– Politics: Tug of war between Supreme Court –
Regulators and Government
– Society/Employment: 1.4 million jobs lost
– Exports: Average forgone exports since 2008 = USD
2.3 billion annually
– Capital flight to Malaysia, UAE, Bangladesh, Jordon
(and now India)
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5. Cost of Not Taking ACTION (cont..)
• Energy management and national integration
– Tensions between Islamabad and Balochistan
(Royalty and gas pricing issue)
– Tensions between Islamabad and Sindh (tariff on
Thar Coal and sharing of generation-transmission
revenues)
– Tensions between Islamabad and Punjab
(stoppages of gas to textile, fertilizer, cement
industries/Energy riots)
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6. Three Broad Reform Areas
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7. I. Energy Governance
• Independence of boards
• Induction of professional management
• Strengthening of regulatory bodies oversight
• Appropriate legislative changes to allow deregulation
• Case of Punjab Government
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8. II. Energy Pricing
• Phase out subsidies
• Hidden Subsidies
• Cross Subsidies
• Targeted Subsidies
• Rationale for pricing
• Producer pricing
• Consumer pricing
• Economic basis for all sectoral pricing
• Full cost recovery of service provided
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9. III. Government’s Role in Energy Sector
Limiting Government should Government must
Government’s role to provide level playing take lead in
policy and planning field conclusive discourse
Integrated energy
Regulator to oversee policy….and ensure its Issue of large dams
implementation
National Energy
Investment and
Conference focused Thar Coal (and
management to be by
on short term procedural hickups)
private sector
solutions
Energy trade with
neighbors
Learning from Indian
example • Power sector (India)
• Gas Pipelines
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(TAPI, Iran, Qatar etc.)

10. Sequencing of Solutions
Short Term Medium Term Long Term
• Curtail power sector • Integrated Energy Plan • Multi-buyer Multi-
losses • Implementation of seller private sector
• Costs of nonpayment energy efficiency energy market
of bills standards • Insulating gas sector
• Power sector theft • Gas sector linkages from security threats
• Transmission losses with neighbors • Incentivize oil
• Allowing provincial exploration (removal
government to take of subsidies on other
autonomous decisions sources)
• Develop national
consensus on hydro
and coal sources (e.g.
dams and Thar coal)
• Vision and capacity for
renewables
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11. What about External Solutions?
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12. While TAPI and other Central Asian prospects will be driven by
geo-politics, are there any medium term solutions?
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13. Trade in Energy
Regional Prospects (e.g. SAARC)
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14. Trade in Energy (SAARC)
Efficient
Petroleum Infrastructure energy
products development markets
Trade in Decentra
power lized
electricit
y
solutions
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15. Synchronizing National Policies
• Joint techno-economic evaluation of opportunities
and determination of pre-requisites
• Establish financially sustainable energy entities,
promote competition and ensure cost-reflective
pricing of energy goods and services
• Develop project-specific legal/institutional
arrangements
• Seek advice and support from multilateral institutions
particularly in drawing experiences from Southern
Africa Power Pool, Nordel/Nord Pool and electricity
trade in Europe
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16. India – Pakistan Power Trade
• Transmission lines through Wagah-Attari border
• Surplus pockets in Indian Punjab (and downwards)
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17. Implementation !!
Who will do it?
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18. Implementation
• Issue of rent-seeking
– Rental power plants debacle
– Who steels power? [98.5% are large scale]
– Pricing and need for microeconomist
• Reforming service structure in energy entities
– Who runs the ministry? [turnover rate of federal secretary]
• Enforcing results based management with KPIs
• Lack of demand-side accountability
– Stronger consumer bodies needed
– Who are the regulators? [need for regulatory assessment]
– Punjab blocks GT Road for its supplies
– SDPI’s report on Karachi Electric Supply Corporation
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19. Thank You
www.sdpi.org, www.sdpi.tv
vaqar@sdpi.org 19