Pakistan's electricity sector is incrisis: extended periods of blackouts persisted in 2010 andcircular debt is increasing. Despite investments ingeneration capacity, electricity demand continues to exceedsupply, with blackouts as long as 8-10 hours per day incities and sometimes double that in rural areas, and iswidely recognized as a severe obstacle to growth and povertyreduction. In November 2010, the government was forced torent the world's largest power ship to boost generationcapacity. Meanwhile, the government of Pakistan's (GOP)inability to finance its commitment to fund subsidies,inefficiencies of the sector entities including lowcollections, delays in determination and notifications, andincreased cost of fuel imports contribute to an increasinglysevere circular debt problem. The analysis shows that giventhe current cost of electricity supply, the March 2011tariff structure will improve the benefit incidence ofelectricity subsidies for residential users and reducefiscal burden significantly in comparison to March 2008. Forexample, our estimations suggest the share of electricitysubsidies for the richest 20 percent of the populationdeclined from nearly 40 percent in March 2008 to 29 percentin March 2011. Despite this improvement, the richesthouseholds remain the greatest beneficiaries of thesubsidies. Also, while the fiscal burden of electricitysubsidies increased in nominal terms during the same timeperiod, it declined by almost 60 percent in real terms. Theresults of the benefits incidence and scenario analyses havea number of policy implications for the fiscal burden ofsubsidies, and their ability to protect the poor andvulnerable efficiently.
PDF
download
878987797
028-85220240
