Policy symposium on taxation and energy reforms

Policy symposium on taxation and energy reforms

The Sustainable Development Policy Institute (SDPI) is a policy research institute and the oldest civil society think tank in Pakistan, which produces knowledge on sustainable development to enhance the capacity of government and private sector in making informed policy decisions and to engage civil society on issues of public interest.

In November 2013, SDPI brought together political representatives, civil society organisations, business community, media, academia, and practitioners of economic policy to discuss and form a consensus around future demands of Pakistan’s socio-economic challenges. The discourse mainly focused on taxation and energy reforms in Pakistan and intended to serve as an entry-point for debate on inclusive economic governance.

The main objective of this policy brief is to highlight the link between lower than economic-cost tariffs and load shedding. If tariffs do not cover Generation Companies’ operating costs they are unable to buy sufficient fuel. This is why many power stations are operating below capacity. To eliminate load shedding Pakistan needs not to only increase utilisation of existing capacity, but also substantial investment in new capacity. However, investors require tariffs high enough to cover both operating and capital costs, i.e. including a return on capital invested. There has been minimal investment in recent years because tariffs have been too low to cover operating, let alone capital, costs. With growing demand this has meant an inevitable increase in load shedding. The only way to eliminate load shedding in the short to medium term is by increasing tariffs.

Once consumers understand that artificially suppressing tariffs is largely responsible for load shedding, it should become easier for the political representatives to take the difficult decision to reduce untargeted subsidies and pass on the full cost of supplying power to consumers. Finally, these political representatives will also need to assert themselves and confront the power sector defaulters and crackdown on theft that is resulting in losses well above international norms.

  1. How good is this research?

    Assessing the quality of research can be a tricky business. This blog from our editor offers some tools and tips.