According to a World Bank report which is only for official use the Power division of Pakistan has caused losses of Rs 5 trillion ($ 45 billion) to the national exchequer during the last ten years (FY 10-FY 19).
Power sector incurs losses of about 2.2 per cent of GDP every year due to different factors including (i) high costs of power generation;(ii) losses accumulated from unfunded public policy mandates and lack of timely revision of tariffs ; and (iii) poor performance of electricity Distribution Companies (Discos). According to the World Bank, the cost of generation in Pakistan is 25 per cent higher than the regional average due to expensive Power Purchase Agreements (PPAs).
According to the report the heavy dependence of power producers on imported fossil fuels increases the generation cost even more if there are delays in tariff notifications. For example, tariffs were not increased between2015-18 and during this period generation costs increased by 25 per cent.
To lower to cost of power generation the Federal decided to step in and the first round of talks between the government and power producers took place between April 15th-20th, 2020. The policy reforms in the power sector are expected to set the path to reduce the flow of the circular debt FY22 onwards and eliminate the stock by FY29.
