Pakistan’s power costs among highest in S Asia for industry, commerce

ISLAMABAD: Pakistan’s residential power tariff ranks closely to, or slightly higher than, those of neighboring countries in the region, yet the country’s industries and businesses face some of the steepest electricity costs in South Asia.

According to recent data, Pakistan’s industrial and commercial sectors pay significantly more per kilowatt-hour (kWh) than counterparts in India and Bangladesh, placing considerable financial strain on businesses and impacting economic competitiveness.

Pakistan’s household electricity rates amount to 45.1 per cent of the global average and are 84.5 per cent of the Asian average, while business rates are 110.1 percent of the global average and reach 154.3 per cent of the Asian average.

Household rates are 42 per cent of business rates, and small businesses pay 98.8 per cent of what large businesses pay. Low-consumption households pay 32.3 per cent of what high-consumption households do. This imbalance puts additional pressure on households and limits foreign investment potential, as energy costs directly impact the competitiveness of Pakistan’s manufacturing and service sectors. Global electricity price data from March 2024 by GlobalPetrolPrices.com places Pakistan’s electricity rates above both regional and global averages, further burdening households and industries alike.

Notably, the global average electricity price stands at 15.4 cents in US dollar per kWh for residential users and 14.9 cents per kWh for businesses. Europe has the highest residential electricity prices at 22.8 cents per kWh, while Asia records the lowest at 8.2 cents. Other averages include Africa at 11.9 cents, Australia at 23.6 cents, North America at 14.2 cents, and South America at 18.5 cents.

Industry and business electricity rates are also highest in Europe at 19.5 cents per kWh. Africa and Asia report the lowest business rates, both at 10.8 cents and 8.2 cents, respectively. On other continents, average prices are 20.5 cents in Australia, 16.1 cents in North America, and 18.9 cents in South America, as per data from GlobalPetrolPrices.com. Notably, the prices were collected in March 2024

Pakistani households pay over 7 cents, and rates can soar even higher for commercial and industrial consumers hitting 16.6 cents per kWh. This comparison is based on the prices of March 2024, but following a tariff hike from July 1, 2024, where the government increased the base rate by up to Rs7.12/kWh, Pakistan’s electricity costs now starkly exceed those in regional counterparts, despite its economic challenges.

Compared to other South Asian nations, the electricity price gap is stark. India and Bangladesh benefit from more affordable rates due to robust coal reserves, diversified energy sources, and superior grid infrastructures. India’s prices hover around 7.7 cents for residential and 12.1 cents for industries, and Bangladesh maintains 5.4 cents for residential and 8.7 cents per kWh for industries, enabled by energy subsidies and an energy mix of natural gas, hydroelectric, and coal power.

Globally, the lowest residential electricity rate is in Iran, at just 0.2 cents per kWh, while Bermuda reports the highest at 45.8 cents. Industrial users see similar disparities: Libya has the lowest rates at 0.9 cents per kWh, while businesses in the United Kingdom pay up to 52.7 cents per kWh, underscoring global variations driven by national policies, subsidies, and infrastructure capabilities.

In the U.S., businesses pay an average of 14.5 cents per kilowatt-hour for electricity, with residential rates slightly higher at 18.4 cents. The country benefits from a balanced energy mix — including coal, natural gas, nuclear, hydroelectric, and renewable — that helps keep electricity prices stable despite global market fluctuations.

Business rates vary globally, with China at 8.9 cents per kWh, Germany at 24.5 cents, Japan at 18.3 cents, Saudi Arabia at 6.8 cents, Indonesia at 7.2 cents, Vietnam at 7.5 cents, Russia at 7.9 cents, Bangladesh at 8.7 cents, the UAE at 11 cents, India at 12.1 cents, Turkey at 12.7 cents, and the U.K. at 52.7 cents.

Residential tariffs are similarly diverse: 7.7 cents per kWh in China, 35.5 cents in Germany, 21.1 cents in Japan, 5.3 cents in Saudi Arabia, 9.3 cents in Indonesia, 7.4 cents in Vietnam, 8 cents in the UAE, 7.7 cents in India, 4.8 cents in Turkey, and 35.7 cents in the UK.

The disparities highlight differing national energy policies, with China and the US focusing on lower costs, while Germany maintains higher prices to support clean energy transition. In the Gulf region, where nations like Saudi Arabia, the United Arab Emirates (UAE), and Qatar possess vast oil and gas resources, electricity rates are among the lowest globally. The UAE and Saudi Arabia, for instance, report rates well below 5 cents per kWh, benefiting from heavy government subsidies funded by petroleum revenues. This policy keeps costs low for both citizens and businesses, fostering a competitive industrial environment and supporting residents with affordable electricity during peak summer months when consumption spikes due to air conditioning demand.

It is to be noted that Pakistan’s energy challenges stem largely from a reliance on imported fossil fuels, high transmission losses, and a struggling infrastructure. Imported oil and liquefied natural gas (LNG) are vital for Pakistan’s energy needs, yet expose the nation to international price volatility, which is compounded by a weak rupee and fluctuating global energy markets. Furthermore, Pakistan’s power grid suffers from transmission and distribution losses.

In contrast, several Gulf nations, including Saudi Arabia, the UAE, and Qatar, keep electricity prices low, supported by substantial subsidies funded by oil and gas revenues. These policies have enabled Gulf countries to foster competitive industrial environments, benefiting residents and businesses alike. The UAE, for instance, reports rates below 5 cents per kWh due to government subsidies.

Experts advocate for Pakistan to diversify its energy mix, expanding renewable projects such as wind and solar to mitigate reliance on imported fuels. Additionally, modernizing infrastructure to reduce transmission losses and restructuring the sector’s financial model could alleviate the energy debt burden. Pakistan’s circular debt now exceeds $10 billion, adding a significant load to the national budget.

Regional cooperation could provide cost-saving solutions. Pakistan’s neighbours, such as India, have benefited from energy trade agreements with Bhutan and Nepal, stabilising prices. By exploring energy trade options with nearby nations like Iran and Afghanistan, Pakistan might be able to offset some of its costs.