Arshad Mahmood Awan
In recent years, rising energy prices have become a significant obstacle to Pakistan’s economic growth, especially affecting the productivity of its industrial sector and its ability to compete in global export markets. The surge in energy costs has raised production expenses, making Pakistani industries less competitive compared to those in other countries. A new report by the International Energy Agency (IEA) underscores the growing challenge, revealing that power tariffs for energy-intensive industries in Pakistan are among the highest in the world.
According to the IEA’s 2024 report, electricity prices for industrial sectors in Pakistan averaged 13.5 cents per kilowatt-hour (kWh), a rate far higher than that of Pakistan’s regional competitors and major global trading partners. To put this into perspective, industrial electricity costs in 2024 were reported as 6.3 cents per kWh in the United States and India, 7.7 cents in China, and 11.5 cents in the European Union (EU). In Norway, a key European market, rates were as low as 4.7 cents per kWh. This stark contrast means that Pakistan’s industrial sector is paying nearly double the electricity prices compared to countries like China, India, and the US, and 18% more than the EU.
This significant disparity in energy costs has been one of the key factors stalling Pakistan’s industrial and economic growth. Higher electricity prices increase the operational costs of energy-intensive industries, eroding their profit margins and making it harder for them to compete internationally. As a result, the nation’s export performance has been sluggish, and industries that rely heavily on affordable energy face an increasingly difficult environment.
Historically, Pakistan managed to counterbalance the detrimental effects of high electricity costs through other advantages such as lower labor rates, government-subsidized export finance, and energy subsidies aimed at boosting industrial output. However, with the country’s fiscal challenges intensifying, these subsidies have been significantly scaled back under pressure from the International Monetary Fund (IMF). The withdrawal of energy subsidies and export finance, coupled with the ongoing reduction in other incentives for export industries, has further exacerbated Pakistan’s struggle to maintain its competitive edge in the global market.
The impact of these changes is being felt across the industrial landscape, with many sectors now finding it increasingly difficult to sustain production levels and remain price-competitive. In particular, industries such as textiles, manufacturing, and chemicals, which traditionally formed the backbone of Pakistan’s export economy, are facing challenges that threaten their viability in the global marketplace. The rising cost of energy, coupled with the withdrawal of financial support from the government, means that Pakistan’s exports are becoming less attractive compared to those of other countries with lower production costs.
The growing demand from Pakistani businesses for a reduction in energy rates for export-oriented industries is a direct response to these pressures. However, the situation is complicated by the fact that the country is already struggling with a massive fiscal deficit. The government, which is already grappling with insufficient resources, is unlikely to be able to meet the demands for significant reductions in energy tariffs unless it undertakes extensive and urgent reforms in the energy sector.
To address the issue of high electricity costs, Pakistan needs to implement deep and comprehensive reforms within its energy sector. These reforms must focus on creating a competitive energy market that can drive down prices while ensuring reliable and sustainable electricity supply. Additionally, tackling inefficiencies such as the widespread electricity theft and system losses—which currently hover around 30%—is critical to bringing down overall energy costs. The restructuring and potential privatization of distribution companies would be another necessary step in improving the sector’s financial health and operational efficiency.
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Furthermore, Pakistan’s reliance on imported fossil fuels is a major driver of high energy costs. The country imports a large proportion of its energy needs, which exposes it to global market fluctuations and price volatility. To reduce its dependence on costly imports, Pakistan must urgently invest in its renewable energy potential. The country is blessed with abundant solar and wind resources that remain largely untapped. Harnessing these cheaper, cleaner energy sources would be a game-changer for Pakistan’s energy landscape, making energy costs more affordable for industries while also reducing environmental pollution.
While the government has made claims about advancing the use of renewable energy, progress in this area has been slow. The lack of tangible results in expanding solar and wind power generation highlights the gap between policy intentions and actual implementation. Until these renewable energy resources are effectively harnessed and integrated into the national grid, Pakistan will continue to face high energy costs that undermine its industrial competitiveness.
In conclusion, Pakistan’s soaring energy costs are a significant impediment to the country’s economic growth and export potential. The high cost of electricity, particularly for energy-intensive industries, is eroding Pakistan’s competitiveness in the global market and making it increasingly difficult for local industries to maintain their productivity levels. While the government has historically relied on subsidies and low labor costs to offset the impact of high energy prices, the reduction in these supports under IMF pressure has worsened the situation.
To address this issue, Pakistan needs urgent and comprehensive reforms in its energy sector, including the creation of a competitive energy market, the reduction of electricity theft and system losses, and a shift toward renewable energy. Only by making these changes can Pakistan hope to reduce its energy costs, improve its export competitiveness, and restore its industrial productivity. Until then, the country will continue to face significant economic challenges, with its industries struggling to compete on the global stage.
