Reallocation of Investment from the Public to the Private Sector

Pakistan’s economic growth has experienced a significant decline since the 1990s, with an average GDP growth reduction of 1.84 percentage points, coupled with a 3.11 percentage points decrease in investment growth (Ikram and Mahmood, 2022). A key factor contributing to this downturn is the decline in public investment, particularly in the electricity sector. During the 1990s, structural adjustment policies emphasized privatization, leading to the withdrawal of public investment from the electricity sector.This shift resulted in the establishment of 18 independent power plants (IPPs), based on the premise that private entities would operate more efficiently. However, this privatization policy, particularly in the energy sector, raises critical questions about its effectiveness in reallocating resources from the public to the private sector. Using comprehensive data from sources such as the Ministry of Energy (MOE),Central Purchase Power Agency (CPPA), State of Industry Reports (SOIR), and Power Statistics, a detailed analysis reveals significant changes in the energy mix. The publicto-private electricity generation ratio shifted from 70:30 to 40:60, while the generationmix transitioned from low-cost hydel to high-cost thermal energy. Consequently, the electricity growth rate halved post- privatization (since 1994), and private sector electricity generation cost nearly doubled those of the public sector by 2023. The growing share of capacity purchase price relative to energy purchase price in total power purchase price implies a potential increase in costs for consumers. These findings challenge the efficiency hypothesis underlying privatization in Pakistan’s energy sector. Policymakers are faced with two potential paths: restructuring the private sector or regaining control over electricity generation to ensure cost-effectiveness and sustainability. Addressing these issues is crucial for revitalizing Pakistan’s energy sector and supporting broader economic recovery.