Pakistan’s industrial sector, a critical driver of economic growth and employment, is grappling with an escalating crisis: exorbitant electricity prices.Pakistan’s industrial sector is struggling under the burden of soaring electricity prices, which are significantly higher than those in competing economies. 

 

In 2024, energy-intensive industries in the country are paying 13.5 cents per kilowatt-hour (kWh)—nearly twice the rates manufacturers in China, India, and the U.S. pay, where electricity costs range between 6.3 and 7.7 cents per kWh, according to an editorial published in The Express Tribune.  Even within the European Union, known for its traditionally high energy costs, industrial electricity rates remain 18 percent lower than in Pakistan.  

 

This stark price disparity is severely undermining Pakistan’s export competitiveness at a time when global markets are already challenging. With electricity comprising a major portion of production expenses, local manufacturers struggle to keep their pricing competitive, allowing cheaper imports from energy-efficient economies to dominate.  

 

Beyond stifling export growth, the exorbitant electricity costs also deter foreign investors, who prefer to set up industries in countries with lower operational expenses and higher profit margins. The issue is further aggravated by inefficiencies in the energy sector, mounting circular debt, and dependence on costly imported fuels.  

 

Despite successive tariff hikes, the government has yet to implement structural reforms needed to bring down costs. At the same time, businesses continue to endure an unreliable power supply, further diminishing productivity and economic growth.Skyrocketing energy costs have placed an unbearable burden on industries, forcing many businesses to curtail operations, shut down, or relocate. 

 

As the sector struggles to remain competitive in global and regional markets, the crisis threatens the country’s economic stability, job market, and overall development.Over the past few years, electricity tariffs in Pakistan have surged to unprecedented levels. Some of the factors contributing to this crisis are -

Pakistan’s energy mix relies heavily on imported fossil fuels, including LNG, coal, and furnace oil, which are subject to international price fluctuations. The country has been slow to shift towards cheaper renewable energy sources, exacerbating the cost burden.
   
The South Asian nation’s power sector suffers from a massive circular debt problem, estimated to be over PKR 2.5 trillion. This debt arises due to inefficiencies in power distribution, poor bill recovery, and excessive transmission losses, forcing the government to increase tariffs to compensate for revenue shortfalls.

The International Monetary Fund (IMF) has mandated reforms in Pakistan’s power sector, requiring the government to remove energy subsidies and implement cost-reflective pricing. While these measures aim to address financial sustainability, they have significantly increased electricity costs for industries.

Pakistan faces one of the highest transmission and distribution (T&D) losses in the region. Ageing infrastructure, power theft, and mismanagement contribute to inefficiencies that further inflate electricity costs.

 

The depreciation of the Pakistani rupee against the U.S. dollar has further driven up the cost of importing fuel for power generation, leading to higher electricity tariffs.The high cost of electricity has profound consequences for Pakistan’s industrial sector.

 

Industries in Pakistan, particularly textile, steel, and manufacturing units, are struggling to compete with regional rivals in China, Bangladesh, and India, where electricity costs are significantly lower. Higher production costs mean that Pakistani products are more expensive in export markets, reducing demand and shrinking foreign exchange earnings.

 

Many small- and medium-sized enterprises (SMEs), which form the backbone of Pakistan’s industrial sector, are shutting down due to unsustainable electricity costs. 

 

Larger industries are also downsizing operations, leading to mass layoffs. The textile sector, which accounts for the majority of Pakistan’s exports, has been particularly hard-hit, with numerous factories closing down or shifting production to more energy-efficient locations.

High energy costs deter foreign investors from setting up industries in Pakistan. Multinational corporations prefer investing in countries with stable and affordable electricity rates. The unpredictability of energy prices in Pakistan makes it an unattractive destination for industrial investment.

 

As industries struggle with electricity costs, they pass the burden onto consumers in the form of higher prices for goods and services. This fuels inflation, making essential commodities more expensive and eroding the purchasing power of ordinary citizens.

 

The Pakistani government has introduced several measures to tackle the power crisis, but these efforts have fallen short in providing long-term relief to industries.Pakistan’s industrial sector is at a critical juncture, struggling to survive under the burden of exorbitant electricity prices. 

Without urgent reforms and policy interventions, the country risks economic stagnation, rising unemployment, and declining industrial output.