Electric cars could break Pakistan's electricity death spiral

One intervention for many problems

Muzamil opens with the mood of the country. Inflation is rising, the IMF is coming, the dollar may get dearer and electricity certainly will. New taxes are arriving. People who once switched off their air conditioners are now switching off their fans in a heatwave. “A common man just goes into depression,” he says, because no solution seems to be coming.

So he sets out to talk about one. He wants to show how a small government intervention could fix many problems at once. His answer is electric cars. Around the world, he notes, a race is under way over who will dominate electric car manufacturing, with Tesla and BYD among the names. His question is what would happen if Pakistan started selling them at home.

Why Pakistan cannot make things

He begins with jobs. About 35 lakh young people turn 18 every year and enter the job market. Pakistan creates few jobs for them, and many of those are unproductive. A property dealer selling files, he says, adds less to the nation than a farmer growing fruit. Productivity drives growth, and growth drives development.

Manufacturing matters most for a country like Pakistan, he argues, because it gives large numbers of relatively unskilled workers productive jobs. Pakistan built a manufacturing base in the 1960s, nationalised it, and has imported cheap goods from China ever since.

Any manufacturing needs three inputs, in his framework: raw material, human capital and energy. Raw materials are traded commodities, so everyone pays roughly the same price. Labour is where Pakistan has an edge. He puts GDP per capita at about 1,400 to 1,500 dollars, against roughly 12,700 in China, so a Pakistani worker costs about a ninth as much. Energy is where it falls apart. In his estimate, Pakistan’s electricity is three to four times as expensive as in comparable markets. Every step from cotton to yarn to cloth to shirt uses power, so the finished product costs more. Buyers go to India, Vietnam or Bangladesh instead. “It’s always cheaper to bring stuff from China instead of making it in Pakistan,” he says.

What is inside a power bill

A unit of electricity costs about 70 to 75 rupees, he says, and there is talk it will cross 100 after the budget. In the UAE, he notes, a unit costs about 24 rupees. Even at 100 rupees, the government cannot cover what it owes the power plants, so circular debt grows by trillions of rupees each year. That debt eats tax money that could have gone to hospitals, schools and roads.

He then breaks the bill into four charges. The first is the cost of production. He argues this is already globally competitive. Hydel, nuclear and wind plants cost little to run, and as oil and gas plants retire and local coal and renewables come in, production costs should fall further.

The second is the capacity payment. When the power contracts were signed, the government was the single buyer. Private investors asked what would happen if the government stopped buying. The government gave sovereign guarantees: produce or not, you will be paid for capacity. So if a 1,200 megawatt plant runs at 400 megawatts because demand is low, the state still pays for the other 800. That month, he says, capacity payments added 16 rupees to every unit. A 75 rupee unit should cost about 59.

The third is taxes. Because the government cannot collect income tax directly, he says, it loads income tax and withholding tax onto power bills. A new factory that has not made a profit yet still pays them. The fourth is the fuel price adjustment. He shares his own bill. He was away, used about 221 units, and was charged 18,000 to 19,000 rupees. Around 8,000 rupees was the bill with taxes. Another 8,500 rupees was fuel price adjustment.

The death spiral

The result is that people cut their use. A salary has a fixed budget for electricity, so as prices rise, consumption falls. When consumption falls, plants produce less. When production falls, the capacity charge per unit rises. “If the system kept running like this,” he says, a day would come when a unit costs 1,000 rupees and the country pays only capacity charges.

He gives the numbers. In 2022, Pakistan’s plants produced about 140,000 gigawatt hours. This year, he expects about 125,000. Production fell by 15,000 gigawatt hours in two years instead of growing.

It is a chicken-and-egg problem. Cheaper power would grow industry, and bigger industry would make power cheaper. The government has no fiscal space to cut prices. People have no money to raise consumption. He says that when he asked people across the PTI and PML-N governments, none had a real solution, and circular debt grew under each of them.

The hypothesis: put idle capacity to work

His hypothesis is simple. If Pakistan used all of its roughly 45,000 megawatts of installed capacity, capacity payments would fall to zero and the 16 rupees per unit would be saved. The question is how to raise demand without new money. His answer is transport, because Pakistanis already spend on petrol every month. “This is not new money,” he says. It is money already being spent on transport.

Pakistan has about 7.5 million cars and adds about 200,000 a year. It also adds about 20 lakh motorcycles a year. An average car runs about 10,000 kilometres a year and an average motorcycle about 4,000. By his rough estimate, charging a fully electric fleet would need more electricity than Pakistan consumes today, enough to use the production capability that already exists. “We are just not able to optimise it properly,” he says.

He is clear this cannot happen overnight. Pakistan cannot afford to replace millions of cars at once. The start could be the new cars and motorcycles sold each year, with petrol vehicles phased out over time. Because Pakistan mostly assembles imported cars, he argues, converting assembly lines costs relatively little, and the country could leapfrog into an industry that China and America are now fighting over. He is not claiming Pakistan would beat China. He sees room for a role, possibly selling into Africa and the Middle East.

Price is no longer a barrier, in his view. He mentions a BYD car called the Dolphin, which he says sells for around 10,000 dollars with a range of about 400 to 450 kilometres, and asks viewers to check the details. That is about 27 lakh rupees, at a time when ordinary local cars cost far more.

What the country would gain

Muzamil lists the benefits. Pakistan imports about 15 billion dollars of oil a year. He takes a conservative estimate that at least 7.5 billion dollars of that is petrol for vehicles. “Can you imagine,” he says, Pakistan chases the IMF for one or two billion dollars, yet could save 7.5 billion a year on fuel.

Capacity payments would fall because money spent on petrol would move to electricity. Power bills would drop for homes and industry. Saved foreign exchange would help stabilise the dollar. Electric cars also need less maintenance. At 100 rupees a unit against 273 rupees a litre for petrol, he says, driving the same distance on electricity costs about half. Cleaner air in Lahore, Karachi and Islamabad would cut health costs. Lower emissions would strengthen Pakistan’s case for cheap climate financing. And as circular debt shrinks, tax money could return to development.

A carbon tax and a luxury limit

For practical steps, he offers two routes. The first is a ban on new petrol car sales, announced two years ahead so makers can find and assemble electric models. He expects the car lobby to fight it.

The second is a carbon tax of 50 rupees per litre on petrol, rising by 50 rupees each year. Diesel would be exempt, because trucks run on diesel and taxing it would push up the price of goods. The revenue would be used to cut the extra taxes on electricity. Electric driving would then cost a fraction of petrol. Where a driver spends 30,000 rupees on petrol, he says, 6,000 rupees of electricity could do the same job. People would want electric cars without any ban.

He adds one condition: ban or heavily tax electric cars above a certain price. He credits the PTI government with a good electric vehicle policy, but says it left the top end open, so imported luxury models costing 150,000 to 200,000 dollars came in with little tax. His reasoning is about the country’s dollars. One 100,000 dollar car serves one family. The same dollars could buy ten 10,000 dollar cars, serving ten families and adding ten households of electricity demand. “Let the rich man also ride in a Dolphin,” he says. If that is too much, tax the luxury cars heavily and use the revenue to pay down circular debt.

Who will push back

Muzamil expects resistance from petrol pump owners, oil marketing companies and car makers, whom he describes as some of the richest interests in the country. In his view, they will appeal to the public’s emotions about a 50 rupee rise while the country pays far more over time through costly power, inflation, taxes and debt. Many in the middle class went bankrupt in this inflation, he notes, and ordinary people find new jobs when theirs disappear. If these businesses have to change, “no disaster will come from it.”

He says he has researched the idea for four years. He first discussed it with Malik Amin Aslam, then the climate change minister, who proposed it to the government in 2019 with detailed working. In Muzamil’s account, the automobile lobby worked against a strong policy for electric vehicles, and the idea did not go ahead. Had Pakistan started then, he believes, the power crisis might look very different today.

He closes by asking viewers, and engineers in particular, to check his numbers. What charging infrastructure would 75 lakh electric cars need? Which affordable brands could come to Pakistan? Which components could be made locally? He wants the public to study and discuss the idea and push the government for it. “Educate yourselves,” he says, “and push the government in advance,” so that those who want to block it cannot turn the public against it.