‘Pakistan’s import-driven energy policy drains its forex reserves’

LAHORE: Pakistan’s heavy reliance on coal power plants operating on imported fossil fuels results in high debt burden, adverse environmental and health impacts and steep inflation.

“The energy sector crisis impacts Pakistan’s fragile economy and energy security as power shortages and resulting blackouts have reduced the country’s GDP by 2% for past several years,” stated Asim Jaffry, Programme Lead, Fair Finance Pakistan during the media launch of its new research report ‘Pitfalls of Restoring Energy Security with Coal Power Plants in Pakistan’ released in collaboration with Indus Consortium here Wednesday.

Asim Jaffry said that Pakistan’s import-driven energy policy drains its foreign exchange reserves, exposes the economy to international energy price shocks, and puts it at risk of high inflation. “Rising prices of imported fuel has a direct impact on common citizens because they are forced to pay higher electricity bills and are trapped in inequality,” he said, adding that Pakistan must transition to cleaner energy technologies allow shifting from coal to renewable.

The report examines adverse economic and environmental impacts of coal-fired power plants in Pakistan and features exclusive chapters on Pakistan’s debt crises and its ability to repay energy loans.

Authored by senior economist Dr Abid Burki, Professor of Economics at the Lahore University of Management Sciences (LUMS), the report recommends to transition from fossil fuels to renewable sources of energy generation.

Asim Jaffry further added in the past forty-four months, Pakistan’s currency has devalued by 48%, falling from PKR 123 per USD in January 2018 to PKR 182 per USD in April 2022. Devaluations put Pakistan in a difficult position for repayments and make Pakistan more vulnerable given the number of power plants where imported coal is used. Pakistan’s debt burden has been rapidly growing and more than doubled from PKR 1.4 trillion in 2012-13 to nearly 36 trillion in 2019-20 while the debt to GDP ratio climbed from 65% in 2012-13 to nearly 85% in 2019-20, he further cited.

Examining Pakistan’s energy landscape, the report shows coal-fired power plants contribute 13% to the installed capacity of power grid, while coal’s share in electricity generation is relatively higher as it has supplied more than 30% of the energy provided to the national grid since 2019. There is high carbon lock-in within the national grid. Pakistan currently has eight power plants projected to generate 6930 MW of electricity. A total of 36 new coal power plants in the pipeline for years 2032 – 2040 are projected to generate 23,760 MW of electricity.