Expensive electricity is holding back Pakistan's whole economy

Why electricity sits under everything

This episode builds on the two before it in Muzamil’s run on Pakistan’s economy. Those covered the dollar, debt and the case for a production economy. This one starts with the input that every producer pays for.

Muzamil’s point is simple. Whatever you make, electricity is part of the cost. An IT freelancer pays for time, a workspace and the power that runs the laptop and the internet. A textile mill pays for power at every step, from cotton to thread to cloth to a finished shirt. Machinery costs the same for everyone in the world. Pakistan’s edge is cheaper labour. It loses that edge on the price of power.

He gives his own comparison. In Dubai he pays about 28 to 29 rupees a unit. In Pakistan the same unit costs him about 70 rupees, roughly two and a half times more. For industry, he says, Indian businesses get power at about 20 to 25 Pakistani rupees a unit, while Pakistani businesses pay about 50 to 60. “We talk about the bill on our homes,” he says, “but actually, because of the price of electricity, our whole economy is sitting down.” He adds that he does not want blind subsidies. He wants the total cost of production to fall so Pakistani exports can compete and investment can come in.

How the 1990s power contracts trapped the system

Muzamil’s capacity figures are approximate and he asks viewers to check the latest data. Pakistan has around 45,000 megawatts of installed capacity. About 36,000 megawatts can actually be produced at any time. Even at the summer peak, demand reaches about 26,000. So why is there load shedding?

His answer goes back to the 1990s. No new plants were built through the 1980s. Demand rose, and blackouts followed. Short-lived governments of the Peoples Party and the Noon League then brought in Independent Power Producers. In Muzamil’s view, those governments wanted quick, popular results and signed contracts without thinking about the next fifteen years.

He names three mistakes. The contracts were pegged to the dollar, when the dollar was 30 to 35 rupees. Today it is around 300. They were take-or-pay deals, so the state paid the plant even when it produced nothing. And most of the plants ran on furnace oil, one of the costliest sources, at a time when oil prices had swung for decades. Power became expensive, people could not afford it, and demand fell. Money for unused capacity kept flowing out. The gap between cost and revenue became circular debt, and the government borrowed to cover it. He says the same terms were repeated for many CPEC-era plants between 2013 and 2018.

A cycle where every fix creates a new problem

Muzamil describes the result as a chicken-and-egg problem. If Pakistan used the 36,000 megawatts it can produce, he estimates the price might fall from about 70 rupees to about 50. But high prices keep demand low, and low demand keeps prices high. “We are stuck in a strange swamp,” he says, and in his view the people in charge have no real solution.

Privatising distribution companies, raising efficiency and cutting losses all help a little. None of them, he argues, closes the gap between 25 rupees for Bangladeshi or Indian industry and 50 to 60 for Pakistani industry. The IMF wants subsidies ended. The government lacks the money to pay them. So the cost lands on consumers, and a proposal to move industry’s burden onto households would, in his view, cut demand again and create a fresh revenue shortfall.

He sees some relief coming. The early 1990s contracts ran for 30 years and are now expiring. New dams should feed the grid around 2027 and 2028 and lower the overall price. Cheaper power would grow industry, put money in people’s hands and raise demand, which would ease the capacity-payment burden. That is also why he questions a party manifesto promising 15,000 new megawatts when existing capacity sits unused. The goal, he says, is to push more power into factories and offices. Rising demand at home alone is still consumption.

Gas spent on cars instead of factories

The same pattern runs through gas, coal and oil. Muzamil argues Pakistan mismanaged its own resources. In his reading, the Musharraf era opened cheap local gas to CNG cars, which a poor country could not afford. That gas should have gone to fertiliser and power plants. By current reserves, he says, local gas runs out around 2027.

The price gap is large. Local gas cost about 2 dollars, while imported LNG costs about 12, a sixfold jump. Households are used to the old price, so the government subsidises the difference and builds another circular debt. The fix being used is a weighted average cost of gas. Each year local gas falls and imported gas grows, so the blended price rises. On top of that he adds rupee depreciation of about 7 to 9% a year.

Foreign geologists he spoke to were confident that Balochistan and the coastal areas hold enough gas and oil for local needs. He says security concerns and vested interests kept that from being explored properly.

Thar coal, electrification and the pipelines

There is good news, and Muzamil wants every Pakistani to know it. Thar now produces better-quality coal, which is processed and used to generate comparatively cheap electricity. He calls it a silver lining that deserves more investment.

He also expects a shift over the next five to ten years toward electric water heaters, inverter heaters and induction cooking, as gas becomes dearer than power. That saves dollars spent on imported gas, uses power that is largely local, such as hydel, nuclear and coal, and raises demand enough to ease capacity payments. Many households using under 300 units a month, which he says get power almost free, will start paying its real cost.

Then come the pipelines. “Energy is what drives economies,” he says. The Iran-Pakistan-India pipeline would bring cheap Iranian gas through infrastructure that is largely in place. Pakistan instead buys expensive LNG from Qatar, and in his view keeps bowing to American pressure not to buy from Iran. He calls that stupid and points out that India kept buying Russian oil under sanctions. “The IPI pipeline is a lifeline for Pakistan,” he says. “It is not just gas.” He wants the Turkmenistan-Afghanistan-Pakistan-India pipeline and a north-south pipeline built as well, with Pakistan earning transit fees from gas flowing to India. Both countries, he says, need cheap gas to develop.

A young population is a dividend or a curse

Pakistan’s youth is often called its greatest asset. Muzamil puts it in economic terms. People aged roughly 18 to 45 produce more than they consume. Older people, whom he is careful to call a blessing, consume without producing.

“The fact of the matter is that Pakistan does not have much talent right now,” he says. “Pakistan has a lot of human capital right now.” Education outcomes are among the worst in the region. The workforce is largely unskilled and lacks direction. If that does not change within about ten years, the young population will age into a larger dependent group, and the demographic dividend turns into a demographic curse.

He says about 5 million young people enter the job market every year. They are not being trained for the age of AI, and most will not work in AI anyway. Many need factory skills. He wants degrees, online courses and public-private programmes all at once, and calls youth training an emergency that belongs at the centre of policy. He is impatient with viewers who dismiss education and only ask how to make money. “Money is not made just by flipping money,” he says.

Incentives decide which class rises

Muzamil uses the dollar to show how policy shapes ambition. Between 2013 and 2018, he says, the dollar was held at around 100 rupees. Imports were cheap and local trading was cheap, so importers and property dealers did very well. Everyone became a marketer, and producers disappeared. Exporters and overseas workers lost out because local costs rose while their dollar earnings bought the same.

After the dollar was freed in 2018, following IMF intervention, exports and remittances began to rise. A worker sending 1,000 dollars home now delivered more rupees. His children moved to private school. Neighbours saw a driver in Dubai doing well and followed him abroad. Exporters grew while import businesses stalled. “The government does not need to do anything very major,” he argues. It only needs policies that reward productive work, so the honest worker is not outdone by someone who flips a plot.

Build from the bottom up

Muzamil closes with a warning against bad comparisons. Comparing Pakistan with Dubai, whose population he likens to Islamabad’s, or with the United States or Europe, misses the context. The right comparisons are Indonesia, India and Bangladesh.

A developing economy first needs hard industry: steel, pharmaceuticals, chemicals and paper. In his reading, Pakistan had much of that in the 1960s, and the nationalisation of the 1970s under Bhutto destroyed it. That is why Pakistan still assembles cars and phones instead of making their parts. He wants an evolutionary path: hard industry, then low-value services such as data annotation, then specialised work. He does not expect a Pakistani billion-dollar startup in the next fifteen years. China, he notes, won the electric vehicle race because it had built the components and talent base first.

His advice to young engineers is direct. Skip the glamorous ambitions that have no local market, find a component that Pakistan imports and start making it. “Do the mundane, do the non-sexy stuff, which is good for making money,” he says. He points to Interloop as an example: a factory started small that he says now exports about 400 million dollars a year and is the world’s largest sock maker.

He ends by reminding viewers that the show is called Dil Ki Baat for a reason. These are his own learnings, sometimes emotional, open to challenge in the comments. The next episodes will cover what individuals can do to get through the storm and how Pakistan might use its location and young population in a changing world economy.