An energy starved country can never be a prosperous country. The availability of affordable energy is a cornerstone of any sustainable industrialisation and economic growth model.

One would be hard-pressed to find any economies that were able to escape the low growth and poverty trap without access to affordable energy.

Pakistan imports more than $15 billion of energy, making up between one-fourth to one-third of total imports, depending on foreign exchange reserves position. Over the last ten years, there has been an incremental movement to rely on indigenous energy sources rather than imported ones.

As of 2024, almost 75 per cent of total electricity generated in the country is through indigenous sources. Almost 55pc of electricity is generated by a mix of hydel and nuclear sources. Although late by a century or so, the extraction of Thar Coal has quietly led to the availability of low-cost electricity, which wasn’t available earlier.

Most energy imported in the country is in the form of petrol, or diesel. Around 80pc of all petroleum imported is utilised in the transportation segment. There has been a quiet electricity revolution that has been happening globally, making electric vehicles more affordable.

The capacity problem plaguing the power sector is a debt problem, which can be resolved through interventions targeting debt rather than power

It is estimated that more than 30m motorcycles exist in the country, consuming almost $5bn of imported fuel every year. There is a strong case to accelerate the conversion of the same to electric bikes by introducing new electric bikes, converting existing bikes through specialised kits and developing a battery swapping network.

Pakistan has surplus power, with an average generation cost in the range of Rs10 per kilowatt-hour. Pricing access to electricity at the marginal price can unlock demand from the transportation segment, effectively substituting imported petroleum with electricity (generated through indigenous resources).

The capacity problem that currently plagues the power sector is effectively a debt problem, and the same can be resolved through interventions that target debt, rather than power. The problem can also be solved by encouraging incremental power utilisation, and transportation is the ideal segment that can pick up the slack.

Industrialisation of any economy requires access to affordable electricity, which can be done by doubling down on Thar Coal reserves. It is estimated that the variable cost of generation of electricity through Thar Coal is around Rs4 per kilowatt-hour. At this price, even the most energy-intensive industries, whether that is steel making, aluminium smelting, or even petrochemicals, are economically feasible.

To ensure economic growth, we need to reorient the industrial base towards areas where the cost of electricity is the lowest and where there is a competitive advantage in terms of energy cost.

Expanding Thar Coal mines remains crucial to catalyse export-oriented industrial growth in the country. A key intervention that can further enhance energy security is the conversion of power plants operating on imported coal to Thar Coal.

It is estimated that expanding mines and converting such power plants to utilise Thar Coal will require a capital outlay of $1.2bn over five years. This can potentially increase electricity generation through indigenous sources to more than 90pc while reducing the marginal cost of coal as economies of scale kick in.

The process of moving towards the utilisation of indigenous resources has been initiated. The next step requires doubling down on the same and utilising the same in a way that generates maximum value, not just for the country, but for also local populations. It is imperative that an export-oriented industrial base is relocated to Thar and adjoining areas so that a new industrial base can be established that can benefit from affordable energy.

We do not have a resource problem. The demand exists, a working age population exists, and so do resources that can be leveraged to add incremental value. All that is required is effective coordination and optimisation of existing resources.

Importing petrol for transportation, while surplus power exists is a sub-optimal solution to a problem. Similarly, utilising a uniform tariff across the country, and having industries bear the burden of never-ending inefficiencies through cross-subsidy of electricity tariff is also a sub-optimal solution.

The country needs a long-term energy plan, both on the demand side and the supply side. It is only through energy security that the country can achieve sustainable economic growth.

Broad contours of such a plan can be achieved by incentivising additional demand through a marginal pricing regime, such that industries and consumers alike are incentivised to consume more electricity and reduce capacity charge per kilowatt-hour.

Similarly, there needs to be an accelerated plan to convert two-wheelers and three-wheelers to electric. A strong case exists to aggressively roll out electricity-power public transportation across the country, which automatically creates an economic multiplier in the process. Economic incentives exist for this, and the government needs to develop the right policy framework.

Moreover, there needs to be a strategic plan to expand production through Thar Coal in a way that not only completely satiates demand for the conversion of imported coal power plants but also unlocks the economic feasibility of other energy-intensive process industries.

Projects related to coal to gas (which can then be converted into fertiliser) or coal to liquids need to be pushed and treated as a strategic national priority. The resources exist, and so does the technology — what is required is a policy framework that is market-oriented and selects winners on the basis of competitive advantage rather than arbitrary quotas and myopic vested interests. The people of this country deserve a brighter and more prosperous future — and the same cannot be achieved through myopic rent-seeking agents.

The writer is an assistant professor at the Institute of Business Administration, Karachi

Published in Dawn, The Business and Finance Weekly, August 26th, 2024