By Shahid Sattar | Muhammad Mubasal

Pakistan’s innovation landscape presents a grim picture. Pakistan ranked 88th globally and 7th regionally in the Global Innovation Index 2023. While India ranked 40th globally and 1st in the region, this stark contrast underscores the urgent need for transformative strategies and concerted efforts to propel Pakistan’s innovation ecosystem into a new era of growth and competitiveness.

The primacy of innovation in development cannot be denied. Innovation and technological change are fundamental causes of growth. They increase productivity and efficiency, evolve products to capture new markets, and can lead to advances in sustainability by decreasing negative externalities. Technological advancement also tends to have spillover effects, as advancements in production processes, knowledge, and capital are adaptable across industries.

So, how does innovation occur?

In developing countries, innovation is predominantly driven by exports due to two major factors. Firstly, because exporters have access to larger markets which drives economies of scale. In order to fulfill the demands of both domestic and international consumers, exporting firms must increase their productivity through both increased inputs but more so through gains in efficiency. The selection pressure between firms to fulfill demand allows resources to be allocated to efficient firms as less efficient ones become uncompetitive and leave the market.

 

However, this does not happen in Pakistan as the inefficient, unproductive, and uncompetitive firms are subsidized and protected by the government. For instance, a plant owing to heavy protection in the form of import duties and anti-dumping duties on purified terephthalic acid (PTA) and polyester staple fiber (PSF), is purportedly still using 30-year-old outdated technology and it neither innovates nor exits the market. This situation forces exporters to purchase PTA and PSF at inflated prices, disincentivizing the production of Man-Made Fiber (MMF). Consequently, MMF-based exports struggle to expand and remain uncompetitive in international markets.

Secondly, trade creates knowledge spillovers both directly and indirectly. Direct benefits occur from the learning of new technologies and methods, while indirect benefits arise from reverse engineering advanced imports. There is also a process of ‘learning by exporting,’ which states that export behavior has a direct and positive impact on firm-level innovation and productivity. Firms engaging in trade develop minute innovations, learn the dynamics of new markets, and expand networks in the global value chain, which all lead to faster and greater knowledge spillovers.

According to trade statistics provided by the International Trade Centre, Pakistan exported goods worth $11 billion in 2003 while Vietnam and Chile had exports of $20 billion. In 2022, Vietnam exported goods worth $370 billion, Chile exported $102 billion while Pakistan exported a meagre $31 billion. In 2022, Pakistan’s exports accounted for only 10.5% of GDP, whereas the South Asian average stood at 20.5%. One of the major reasons for Pakistan’s low exports is its closed economy.

 

This correlation between international market exposure and innovation is particularly evident in Pakistan’s textile sector, the country’s largest exporting sector. According to Wadho & Chaudhry 2016, firms whose main market is the Middle East, has an innovation rate of 100%, followed by the USA (91%) and Europe (80%). On the other hand, firms whose main market is the local market has an innovation rate of 41%. This further highlights the structural weaknesses in the economy that impedes the growth of domestic industry which is vital for economic growth.

Furthermore, Pakistan’s Global Innovation Index 2023 rankings show room for improvement when compared to regional leaders India and Vietnam, highlighting opportunities for enhancing the innovation ecosystem to boost investments and sustainable growth (Figure 1).

In assessing innovation, various indicators are used, such as patent applications, R&D expenditure, scientific and journal article publications, and gross fixed capital formation. A comparative analysis of patent applications illustrates the gap between Pakistan and India. In 2022, for instance, Indian residents filed 26,267 patent applications, while Pakistan saw only 426. Despite Pakistan’s high rate of change in patent applications over the last decade, with a 273% increase (surpassing Vietnam’s 248% and India’s 196%), the country has yet to leverage potential effectively. This underscores the need for Pakistan to foster a more conducive environment for innovation, aligning with global standards and practices to realise its full potential.

“This need for a conducive environment is further illustrated by the decline in non-resident patent applications in Pakistan, which dropped by 42% over the past decade. In stark contrast, India, Bangladesh, and Vietnam witnessed increases of 14%, 35%, and 128%, respectively. This divergence indicates that Pakistan’s innovation landscape might be perceived less favourably by foreign investors and innovators, potentially due to inadequate regulatory and legal frameworks that impede innovation and investment.”

Regarding research and development (R&D) spending, Pakistan allocated only 0.16% of its GDP to R&D in 2021, a decrease from the 0.32% spent a decade earlier in 2011. This reduction contrasts with the broader trend in South Asia; as per the World Bank’s Enterprise Surveys, only 2.3% of firms in Pakistan invest in R&D, which is significantly lower than the South Asian average of 12.5% (Figure 3). This low investment level in R&D starkly limits the country’s innovative capabilities and growth prospects in the competitive global market.

 

These challenges in investment and innovation translate into credit crunch for the domestic industry. This situation is particularly complex when considering the state of Pakistani SMEs, which constitute 90% of all businesses and employ 30% of the labor force. Despite their significant presence, these SMEs face substantial growth barriers, primarily due to limited access to credit. The World Bank’s Enterprise Surveys reveal that 40.9% of firms in Pakistan are fully credit constrained, and 15.2% are partially constrained. These figures are alarmingly higher than the South Asian averages of 17.1% and 17.7%, respectively. Furthermore, only a mere 2.1% of local businesses in Pakistan had a bank loan or line of credit, compared to 23.7% in the region. The lack of financial support for Pakistani SMEs hampers their ability to innovate and expand, hindering the country’s economic development.

In conclusion, Pakistan’s potential for growth and innovation is substantial yet underutilized. Addressing the challenges of regulatory hurdles, limited investment in R&D, and the constraints faced by SMEs are crucial steps towards unleashing this potential. By focusing on strengthening domestic industries, improving the business environment, and investing in innovation, Pakistan can not only enhance its global competitiveness but also create a robust foundation for sustainable economic growth.

Moreover, removing barriers hindering the export sector is vital to remedying the current innovation dearth. This underscores the importance of adopting an export-led paradigm to drive economic growth. An export-led paradigm shift coupled with a focus on domestic industry development will not only boost exports but also enhance innovation capacity, driving sustainable economic growth in the long term.

The overarching message is clear: export-led growth is not just a solution for Pakistan’s balance of payments crisis and economic expansion but also a catalyst for amplifying innovation. To achieve this, exporters must be insulated from

distortionary interventions, unfavorable tax regimes, and other inefficiencies that impede sectoral growth and divert resources via transaction costs.

By Shahid Sattar | Amna Urooj

As Pakistan steps into critical discussions with the International Monetary Fund (IMF), it’s confronting immense financial pressures while simultaneously holding strategies that could fundamentally change its fortunes: the promise of export-led growth as well as an immense potential in much enhanced agricultural produce.

With a debt-to-GDP ratio that has breached the 70% threshold, Pakistan’s economic journey is overshadowed by the enormity of its debt—60% of it being domestic, bearing the brunt of 85% of the interest payments. This situation paints a vivid picture of the fiscal tightrope the country walks on.**

Yet, why turn to the IMF when an untapped potential lies within? Pakistan’s industrial, agriculture and tech sectors are a beacon of hope, resilience and demonstrate vast capabilities. This scenario presents a compelling case: while Pakistan seeks the IMF’s support, its flourishing textile exports, agriculture sector that can produce surplus and a growing tech sector signify an inherent strength and capacity for economic self-reliance.

 

This juxtaposition of external financial assistance and the potential for home-grown economic revival underscores a critical question — why rely on the IMF when there’s a path to harnessing export-driven growth towards financial independence?

While Pakistan has got other ways to bring in cash, like remittances from abroad or foreign investments, they’re not going to be the game-changer we need anytime soon. Various studies such as the study by Perez-Saiz, H., Dridi, J., Gursoy, T., & Bari, M. (2019) suggests that remittances do not automatically boost a country’s overall economy as much as we might think. While families receiving this money do end up spending more, this spending doesn’t lead to economic growth. The researchers found that whether these remittances help the economy depends a lot on how different parts of the economy are connected. This means that just getting more remittances doesn’t necessarily make the economy stronger. Moreover, the consensus in academic research is that remittances lead to inflation as they increase aggregate demand via higher household income, resulting in increased consumption.

So, we’re left facing some tough choices. From July to February, Pakistan’s exports are consistently trailing behind imports, painting a picture of a trade imbalance. In February alone, the figures are quite telling: exports stand at a modest $2.57 billion, while imports loom at a hefty $4.28 billion (Source: SBP). This substantial gap signals an urgent call to action for enhancing export capabilities to match or even overtake the towering import figures. Remittances, though stable, do not compensate for this disparity, highlighting the critical need for bolstering Pakistan’s export sector to improve the trade scenario.

 

But, there’s a silver lining. With the right push and a bit of creativity, exports can be our ticket to turning things around. It’s not just about selling more, but selling smarter, tapping into a world that wants what we have to offer. For example, Pakistan’s high agricultural import bill could be significantly reduced by revamping the agri-sector to produce self-sufficiency and a sizeable exportable surplus, leveraging initiatives like Special Investment Facilitation Council (SIFC) for corporate farming and agro-industry investments.

All is not lost, we’ve got a world of opportunities right at our fingertips. Pakistan needs to align its textile sector with global trends, shifting towards a 70-30% mix of man-made fibers (MMF) and cotton products. Currently, dominated by cotton exports, diversifying into MMF and high-performance apparel—where global trade is focused—could significantly enhance Pakistan’s export basket. Such a move will contribute to economic stability by meeting international market demands more effectively.

The real challenge isn’t finding new things to sell but getting better at selling what we’re already good at, for example textiles, agricultural and tech products. We’ve got to think bigger, reach further, and make sure we’re not just participants but winners in the global market.

For example, there’s been a remarkable upswing in Pakistan Apparel Exports, particularly in 2021, where we see substantial growth across all markets. The EU and the USA stand out with pronounced spikes, suggesting that efforts to broaden the export base are bearing fruit. This robust performance supports the narrative that Pakistan is moving in the right direction by diversifying its textile exports, leaning into products with higher global demand. With the right policies and continued focus on quality and market expansion, Pakistan can not only secure its position in the global market but also further the goals of economic stability and growth.

And here’s the kicker: we can do it. The agriculture sector also has immense scope for improvement through enhanced yields, corporate farming and getting areas such as the Cholistan Desert into productive use. Israel’s successful transformation of the Negev Desert into a flourishing agricultural area provides a blueprint to Pakistan to potentially replicate it in the Cholistan Desert. Adopting similar innovative farming techniques could spur agricultural development, increase food production, boost employment rate and reduce Pakistan’s reliance on foreign debt by boosting the economy through homegrown resources.

 

Addressing the agricultural productivity gap in Pakistan could be a significant leap toward economic self-sufficiency. The country’s current agricultural yield lags behind that of leading global producers. For instance, Pakistan’s wheat yield is significantly lower than China’s maximum yield, as is the case with rice, maize, sugarcane, and cotton. By closing this yield gap through the adoption of modern farming techniques, better irrigation systems, and superior seeds, Pakistan can substantially increase its economic output which in the ultimate analysis will allow Pakistan to maintain its potential and economic sovereignty while providing employment to its very large workforce.

Consider the wheat production: if Pakistan’s yield per hectare reaches the level of China’s, the output increase could translate to an additional $5.9675 billion. Similar increases across other major crops like rice, maize, sugarcane, and cotton could collectively add up to over $17 billion to the economy. This additional revenue could create an exportable surplus, ensuring food security, and simultaneously addressing the country’s employment issues.

The SIFC and LIMS (Land Information & Management System) are also united on the principle that by utilizing additional lands for such optimized agricultural practices, Pakistan can further boost its economy. An added benefit of $10 billion, in addition to the $17 billion enumerated above, is foreseeable by doing so, enhancing the nation’s export profile.

This kind of agricultural overhaul not only promises to fill existing productivity gaps but also to set a foundation for a more stable and prosperous Pakistan, one where dependency on external debt is greatly reduced, and local resources are fully harnessed for national growth.

Furthermore, one of the initiatives, which is the “1000 Garment Plants” initiative, also aims to double Pakistan’s textile and apparel export capacity from $25 billion to $50 billion by adding 200 garment plants each year for five years. This strategic expansion is expected to revolutionize exports, cater to global market demands, and creating over 1 million jobs, and significantly enhancing Pakistan’s economic landscape and reducing its dependency on foreign aid.

The recent downturn in Pakistan’s textile output, which has hit its lowest point in two decades, illustrates a significant challenge, with the industry experiencing a sharp 35% drop in Large-Scale Manufacturing (LSM) output two years ago.

Despite this setback, the textile sector demonstrated remarkable resilience by subsequently expanding its capacity by 33%. This recovery and unused capacity offer a glimmer of hope amidst the data, pointing to the industry’s ability to rebound.

Although there was a slight decline in textile and apparel exports in the eight months of FY24 compared to FY23, the existence of this unused capacity suggests that the industry is poised for a potential upswing. This capacity to bounce back reinforces the belief that nurturing domestic industries like textiles is crucial for Pakistan’s economic health, potentially more so than relying on unpredictable foreign aid. Harnessing this latent potential to amplify textile production, the nation could enhance its export volume, shrink its trade deficits, and stride towards an economically autonomous future, cutting down its reliance on international financial aid and loans.

One thing to note is that the escalating energy prices have had a significant knock-on effect on Pakistan’s textile industry. As costs rise, local producers find it increasingly difficult to compete on price, leading to a greater reliance on international imports to meet domestic demand. This shift has been detrimental to the foundational sectors of the textile industry such as spinning and weaving, which are struggling to stay afloat. Consequently, many of these essential back-end industries are being forced to shut down, directly impacting Pakistan’s net exports. This decrease in production capacity undermines the country’s ability to export, exacerbating the trade deficit and challenging the nation’s goal of economic self-sufficiency.

Pakistan’s textile sector is not just keeping pace—it’s moving ahead, particularly in the apparel export arena. This industry is undergoing a remarkable transformation, one that is gearing up for substantial export growth and is set to enhance its position in the international market. This positive shift was recently highlighted at a US International Trade Commission public hearing, where Pakistan’s growing competitiveness in the apparel sector was discussed.

The sector’s transformation is marked by the adoption of cutting-edge technologies and a commitment to transparency, aligning with global demands for traceable and sustainable production practices. The recent move towards the establishment of the National Compliance Center (NCC) is the right step in achieving these objectives. The ambitious Net Zero Pakistan Initiative underscores the country’s commitment to sustainability, with leading apparel companies aiming for a carbon-neutral footprint by 2050.

Gains in productivity within Pakistan’s textile sector remain largely untapped but hold significant potential for boosting the economy. Through modernization, such as upgrading technology and processes, the industry could achieve these gains, enhancing efficiency and output quality. Additionally, by shifting focus towards producing higher value-added textile products, Pakistan can elevate its export profile.

To revitalize its economy swiftly and substantially, Pakistan must focus on bolstering sectors like textile, agriculture, and technology exports. The tech sector, in particular, offers a lower-investment, high-return avenue for economic growth. However, its potential is severely hampered by the government’s frequent shutdowns of the internet and social media platforms, crucial for the IT and IT-enabled services (ITeS) industries.

Such disruptions not only hinder the productivity of software exporters and freelancers but also damage the trust of international clients, who prioritize reliability and timely delivery over cost. This mistrust discourages investment and partnership opportunities, pushing potential clients to seek services elsewhere, even at higher costs. As Pakistan houses the world’s second-largest online freelance workforce, ensuring uninterrupted internet access is paramount for not just the IT sector but for the entire economy.

The failure to provide stable connectivity undermines Pakistan’s capacity to reduce its dependency on foreign aid by leveraging its potential for self-sufficiency through IT sector exports, which are currently projected to reach USD 3.5 billion this year.

Pakistan’s history is a testament to its potential for growth, spanning diverse sectors from textiles to technology. Despite challenges such as energy costs, the nation has consistently demonstrated its capacity to rise above obstacles, fueled by its competitive edge in labour costs. The vision for economic resurgence now hinges on a cohesive, export-focused strategy that enjoys unwavering support from the highest echelons of leadership in the new government.

At this pivotal moment, with the complexities of IMF negotiations ahead and the economic landscape in flux, Pakistan’s recent strides in the textile and the recent initiatives being taken in the agriculture sector illuminate the path to sustainable development.

By capitalising on this success, expanding its economic horizons, and enacting meaningful reforms, Pakistan is charting its course towards a prosperous future. It’s a future where economic self-sufficiency is not just an aspiration but a reality, with exports serving as the cornerstone of Pakistan’s economic sovereignty.

By Shahid Sattar | Absar Ali

One of Pakistan’s most pressing economic issues is the chronic shortage of foreign exchange underscored by an import-based-consumption-driven economy with an abysmal industrial base that cannot compete on the international stage and is shrinking with every passing day.

Exports are the need of the hour; while everyone including the government and SIFC (Special Investment Facilitation Council) are cognizant of this fact, unfortunately, the policy measures that have been doled out, especially in the energy domain, reflect an opposite reality.

According to a recent report, the Bangladesh Commerce Ministry, in its draft Export Policy 2024-27, has proposed a 5 to 10 percent rebate on electricity bills for major export-oriented industries. In Pakistan, the government has abolished the preferential gas tariff for export-oriented sectors and hiked gas prices yet again—an increase of 223% since January 2023.

As a consequence, the end-use price of gas-based captive generation has skyrocketed. At the same time, grid electricity tariffs are at around 17.5 cents/kWh—over twice that faced by competing firms in regional economies like Bangladesh, India, and Vietnam.

Is it any wonder then that Bangladesh exported around $47 billion worth of just textiles and garments in FY23, while Pakistan’s total exports across all sectors of the economy stood at a meagre$28 billion during the same period? While Bangladesh and Vietnam have made significant gains in the global market for textile and apparel over the past decade, Pakistan’s share remains marginal (figure 1).

“What is important to understand for our policymakers is that neither the economy nor the industrial sectors operate in a vacuum. Whether or not we can export a product depends on our cost of production relative to that of firms in other countries. If the government continues to push its inefficiencies and social obligations on to the private sector in the form of prohibitive taxes, cross subsidies, inflation, exchange rate depreciation and high interest rates, it translates into higher cost of production that render our products uncompetitive in international markets.”

And this is the reality that the textile and apparel sector—Pakistan’s single largest and perhaps most important manufacturing sector—has been facing every day for well over a year now.

After growing by 54% in only two years and peaking around $19.3 billion in FY22, textile and apparel exports slumped to $16.5 billion in FY23 owing to the withdrawal of regionally competitive energy tariffs amid a larger macroeconomic crisis.

From a peak of $1.74 billion in April 2022, monthly exports declined to a low of $1.18 billion in February 2023 and have now become stagnant at around $1.4 billion/month—$600 million below the installed production capacity of approximately $2 billion/month (figure 2, above).

Following the most recent hike in energy prices, there is no financially viable source of energy available for industrial sectors to manufacture with and compete in international markets. Domestic production of yarn and cloth is at a 20-year (figure 3) low while a drastic increase has been observed in imports of the same (figure 4).

It is therefore safe to assume that the economy is going through premature deindustrialization and over the coming months we will observe a further decline in textile and apparel exports as most spinners and weavers are closing their doors and more and more yarn and cloth are being imported for export manufacturing, resulting in a decline in the share of domestic value-added in exports and deterioration in net exports or trade balance.

At the same time, the economy’s gross external financing requirements stand well over $25 billion per year for the next 5 years and plans for meeting these requirements are limited to squeezing more and more credit out of increasingly unwilling creditors.

To catalyze a resurgence in Pakistan’s textile and apparel sector, a multi-faceted approach targeting key barriers to export growth is imperative. This includes addressing the prohibitively high energy tariffs, persistent delays in tax refunds, high costs and shortage of financing, low product diversification, restrictive import and anti-dumping duties on raw materials, and attracting investment to upgrade and expand the limited manufacturing capacity. Addressing these challenges holistically can not only revive the sector but also position Pakistan as a competitive player on the global stage.

As discussed above, there is currently no financially viable source of energy available to industrial sectors. The cross subsidy from industrial power tariffs must be removed and they must be brought down to a regionally competitive 9 cents/kWh.

Moreover, considering that Pakistan must begin an immediate transition towards net-zero emissions in export production to maintain competitiveness under the EU’s Carbon Border Adjustment Mechanism and similar regulations in other key markets, the CTBCM must be operationalized to allow B2B power contracts with a wheeling charge of 1-1.5 cents/kWh and the cap on solar net-metering for industrial consumers must be increased from 1MW up to 5MW.

Equally vital is the expansion of the export basket beyond cotton-based products to include man-made fibers (MMF), leveraging global market trends and demand. This requires a reassessment of import and anti-dumping duties imposed on MMF raw materials like purified terephthalic acid and polyester staple fiber that afford high levels of protection to domestic manufacturers who use it to extract rents from the domestic market and hinder the development of an MMF-based apparel manufacturing culture in the country.

The limited manufacturing capacity must also be upgraded and expanded. Doing so requires attracting investment by, at the very least, matching the incentives being offered in the region. To name a few, Bangladesh is offering preferential income tax rates, duty-free import of raw material, reduced withholding tax rates, and long-term financing facilities with preferential rates for exporters, while India is setting up seven mega industrial zones for textile and apparel manufacturing with developed factory sites, plug and play facilities and rebates of up to 3% of annual turnover, whereas Vietnam is offering preferential corporate tax rates, duty exemptions and various rebated modes of financing.

By prioritizing competitive industrial and energy policies and fostering an environment conducive to export-led growth, the country can navigate its current predicament and emerge stronger. However, if the status quo is maintained, a point of no return is not very far off in the future.

The consequences will be disastrous not just for the economy but also for Pakistan’s already weak social fabric as a large and young population that otherwise provides a demographic dividend at this stage of development will be further disenfranchised with no opportunities for gainful employment and no hope for a better future.

By Shahid Sattar | Amna Urooj

Against the backdrop of unaffordable energy tariffs, the government is taking a significant step by proposing to lower the electricity tariff to 9 cents. This reduction is expected to naturally encourage people to switch to grid electricity for commercial reasons as the captive power electricity at current gas pricing costs more than 10 cents. This is crucial for Pakistan, where gas is a scarce resource.

For context, Pakistan’s energy tariffs are notably higher than those of regional counterparts, potentially undermining its industrial competitiveness. With electricity tariffs at 17.5 US cents/kWh, Pakistan exceeds Vietnam’s 7.2, Bangladesh’s 8.6, and India’s 10.3 cents/kWh. The disparity is even starker in gas tariffs, where Pakistan’s blended rate is 12.4 US dollars/MMBtu, compared to lower rates in Vietnam, India, and Bangladesh. These high energy costs, particularly for sectors like textiles and apparel, put Pakistan at a significant disadvantage, threatening the viability of its industries in the global market and calling for policy recalibration to ensure competitive parity.

Millions of jobs are at stake as Pakistan’s industrial sector confronts a looming deindustrialization crisis, driven by the dual challenges of skyrocketing energy costs and the global trend of industrial growth sustainability being severely tested by energy policy decisions. Essential for the country’s economic growth and development, the sector is navigating through turbulent waters, grappling with escalating energy costs that exacerbate the threat of deindustrialization.

The economic backdrop in Pakistan

Over the past decade, Pakistan’s economy has shown alarming signs of distress, with Pakistan’s debt per capita escalating from USD 823 in 2011 to USD 1,122 in 2023, marking a significant increase of approximately 36%. Concurrently, GDP per capita has seen a reduction from USD 1,295 to USD 1,223 during the same period, indicating a 6% decrease. This economic strain underscores the urgency for targeted reforms aimed at revitalizing the industrial sector, which could serve as a catalyst for growth and stability.

Deindustrialization: a closer look

Deindustrialization, a process characterized by a decline in the industrial sector’s contribution to the GDP and the employment it generates, poses a significant threat to economic stability and growth. In Pakistan, this trend is exacerbated by rising energy costs, which have become a critical concern for industries, especially in the textile sector. This sector, pivotal to Pakistan’s economy, faces severe challenges due to high energy tariffs, which undermine its competitiveness on the global stage.

Recent statistics from October 2022 to January 2024 highlight the striking impact of rising energy tariffs on industrial energy consumption. Notably, LESCO and MEPCO saw a substantial decrease in electricity usage, with reductions of -73% and -76%, respectively, in January. Such stark declines are indicative of broader industrial contractions and a significant move towards deindustrialization.

Furthermore, the total load of textile industries on all Discos showcased a -69% decrease, a testament to the acute challenges faced by the industrial sector due to escalating energy costs. This trend not only affects the competitiveness of Pakistani industries but also has profound implications for employment and economic growth.

On the other hand, the recent announcement from the Oil & Gas Regulatory Authority regarding the revision of natural gas sale pricing for the fiscal year 2023-24 also underscores a critical juncture for Pakistan’s industrial sector. The restructured gas tariffs aim to streamline categories and adjust costs, potentially impacting the operational expenses of industries across the board. This decision, while intended to address fiscal imbalances and ensure the equitable distribution of energy resources, places additional pressure on an already strained industrial landscape grappling with high energy costs.

The revision introduces new tariffs for general industry processes and captive usage, signaling a significant shift in the government’s approach to managing industrial energy consumption. Such changes are poised to directly affect the cost structure of various industries, from textiles to manufacturing, at a time when the sector is already facing the challenges of deindustrialization and job losses. The move reflects a broader pattern of energy policy adjustments globally, where nations are reassessing energy tariffs to balance economic growth with sustainability concerns. However, for Pakistan, the delicate balance between fostering industrial growth and managing energy costs becomes even more precarious, highlighting the urgency for strategic planning and support mechanisms to mitigate the adverse effects of these policy decisions on the industrial sector’s competitiveness and employment rates.

A path forward

In the face of deindustrialization and escalating energy costs, Pakistan stands at a critical juncture requiring a strategic and multifaceted approach to steer its industrial sector towards sustainability and growth. This approach encompasses several key initiatives aimed at creating a conducive environment for industrial development and economic stability.

Streamlining regulatory frameworks

The complexity and bureaucracy of regulatory procedures can significantly hinder business operations, discouraging both domestic and foreign investments. Simplifying these administrative processes is crucial for enhancing Pakistan’s attractiveness as an investment destination. This involves eliminating redundant regulations, digitizing administrative procedures, and establishing a one-stop shop for business registrations and clearances. By improving the ease of doing business, Pakistan can create a more dynamic and responsive industrial sector capable of adapting to global market demands.

Investing in renewable energy

Pakistan needs to steer its economy toward sustainability by promoting renewable energy, reducing reliance on imported fuels, and addressing price volatility in the international energy market. To this end, industrial units may be incentivized to develop their own renewable energy sources, with on-site projects being allowed an increased solar net-metering cap from 1MW to 5MW. The implementation of the Competitive Trading Bilateral Contracts Market (CTBCM) may facilitate off-site renewable setups, enabling industries to secure green energy at competitive rates through special arrangements like reduced wheeling charges, without the burden of cross subsidies.

The urgency of this transition is amplified by the impending EU’s Carbon Border Adjustment Mechanism (C-BAM), set to be introduced in 2026, which will tax exports based on carbon emissions. Pakistan’s move towards green energy will not be just a response to C-BAM but a strategic imperative to keep its exports competitive alongside regional players like India and Bangladesh, who are rapidly advancing in reducing energy emissions. This shift is vital for Pakistan’s industrial sector to remain viable in the face of stringent global environmental regulations and to participate actively in the international market.

Enhancing export competitiveness

The textile industry, among others with high export potential, is a cornerstone of Pakistan’s economy. Strengthening this sector requires targeted policies that provide incentives for quality enhancement, innovation, and access to new markets. Establishing special economic zones, offering tax breaks for high-value-added products, and facilitating trade agreements can enhance export competitiveness. Additionally, investing in technology and skills development can ensure that Pakistani industries meet international standards and capitalize on global market opportunities.

Learning from global best practices

Numerous countries have successfully navigated the challenges of deindustrialization and high energy costs through innovative policies and strategic investments. Studying these success stories can offer valuable lessons for Pakistan. For instance, Germany’s transition to renewable energy and its focus on high-tech manufacturing, or Bangladesh’s remarkable growth in the textile sector through policy support and market access, provide models that Pakistan can adapt to its context.

Toward a Sustainable Industrial Future

Pakistan’s industrial landscape stands at a crossroads, with deindustrialization looming on one side and the potential for a brighter, more sustainable future on the other. The government’s proposal to lower electricity tariffs to 9 cents is a positive step, but it is only a part of a much-needed broader reform. To truly revitalize the industrial sector and protect it from the global shift toward sustainable development, a multifaceted approach is imperative. This includes simplifying regulatory frameworks, incentivizing the adoption of renewable energy, enhancing export competitiveness, and learning from global best practices. Such reforms are not just about survival; they are about positioning Pakistan one step ahead in industrial innovation and sustainability.

“As the world braces for the impact of measures like the EU’s Carbon Border Adjustment Mechanism, Pakistan must act swiftly to transform its industrial sector into a resilient force capable of thriving in an environmentally-conscious global economy. The time for a decisive action is now; the path Pakistan chooses will determine its place in the global industrial narrative and its economic destiny for generations to come.”

By Noreen Akhtar | Amna Urooj

Introduction, In a transformative shift, Pakistan’s textile industry is setting new standards for sustainability as global markets, particularly Europe and the US, intensify their scrutiny of imports. Environmental, Social, and Governance (ESG) factors have become paramount, with consumers and regulators demanding adherence to higher standards across the entire value chain.

Sustainable strategies across the value chain

Pakistan’s textile exports to Europe and the US have surged, driven by a newfound commitment to ESG practices. These markets now prioritize sustainability, and failure to meet their stringent criteria could jeopardize Pakistan’s exports. To safeguard its position, Pakistan has proactively embraced global standards, positioning itself favorably for continued export growth, including the preservation of its Generalized System of Preferences (GSP) Plus status.

Europe has led the charge in adopting ESG regulations, mandating compliance. Businesses failing to adhere face substantial penalties, emphasizing the seriousness of ESG guidelines. Pakistan, however, has risen to the challenge, with companies swiftly aligning with regulations to ensure uninterrupted access to key markets.

Pakistan’s textile industry, a cornerstone of the economy, is undergoing a profound transformation in response to ESG demands. While challenges persist, such as the perceived cost of sustainability initiatives, industry leaders debunk such notions. Drawing inspiration from success stories like Bangladesh, Pakistan’s companies are proving that ESG compliance can enhance competitiveness rather than impede it.

Driving forces of sustainability

The Ministry of Commerce in Pakistan, in collaboration with international partners, spearheads initiatives to enhance sustainability in the textile industry. By focusing on labor rights, social standards, and environmental practices, these efforts aim to bolster economic resilience and competitiveness while addressing critical challenges in the sector.

On the other hand, initiatives led by industry pioneers like MG Apparel and other prominent textile companies such as Sarena Textiles, Crescent Bahümán Textiles, Crestex, Interloop, US Apparel and Textiles, Yunus Textile Mills and many others exemplify Pakistan’s steadfast commitment to sustainability.

While major textile companies are driving these sustainability initiatives forward, Micro, Small, and Medium Scale Enterprises (MSMEs) in the textile sector are also recognizing the urgent need to improve working conditions and enhance competitive potential. With increasing demand from international buyers for sustainably produced textiles, Pakistan’s textile industry is undergoing a significant modernization process where sustainable production is a key success factor. As Pakistan’s Textile Value Chain (TVC) is disaggregated and strict compliance applies to the entire textile value chain, MSMEs are stepping up their sustainability goals and adapting Environmental, Social, and Governance (ESG) practices to remain competitive and align with international standards.

External allies in the journey

External organizations, including WWF-Pakistan and TÜV Rheinland, have been instrumental in supporting Pakistan’s textile industry on its sustainability journey. Programmes like GIZ’s TextILES provide invaluable guidance on initiatives such as the EU Green Deal, aligning Pakistani businesses with international standards on chemicals management such as Zero Discharge of Hazardous Chemicals (ZDHC), and health and safety.

Environmental and social/ethical commitments

Industry’s dedication to international conventions is seen in its integrated approach of aligning development activities with Vision 2050. Companies demonstrate their long-term commitment to environmental sustainability and women’s empowerment by encompassing responsible sourcing, adopting renewable energy sources, water stewardship, energy conservation, enhancing carbon sinks and employee welfare. Companies have acquired crucial certifications, demonstrating unwavering commitment to environmental and social responsibility. Notable achievements include significant reductions in water consumption, energy savings, and emissions elimination, thus embracing green revolution in the supply chain.

Companies’ impactful community programmes as part of effective CSR policies have provided employment opportunities and access to education and healthcare. Steadfast investment in community engagement projects indicates the fact that social compliances are embraced effectively.

Transparency and governance measures

Supply chain visibility is crucial for ensuring transparency throughout the textile industry. This involves tracing the origin of raw materials, monitoring production processes, and tracking the distribution of finished products.

Pakistan’s textile industry has recognized supply chain traceability as a significant aspect of ensuring transparency and accountability throughout the supply chain. For the first time in Pakistan’s history, industry associations, government, individual firms, and international organizations are collaborating to unanimously develop national standards on supply chain traceability. These standards, under a legal regulatory framework, will be enforced through the National Compliance Centre (NCC). NCC will act as the lead agency designing, regulating, and implementing comprehensive supply chain traceability requirements for export-oriented firms.

Individual companies have made strides towards enhancing firm-level supply chain transparency in alignment with the global requirements. Prominent companies have adopted the most advanced traceability technologies such as LoopTrace and FibreTrace to consciously champion supply chain transparency in the global market. Companies’ ongoing investment in sustainable, clean and transparent supply chain validates their firm commitment to comply with the prerequisite to sustainability in the supply chain that is traceability.

Integrity, responsibility, and transparency are the major components of corporate governance. To ensure the incorporation of these components in all operations, textile firms in Pakistan are encouraging women’s participation in decision-making (top leadership). Regular record-keeping and audits are mandatory to avoid corruption, and performance indicators (KPIs) are devised to ensure ethical compliances and stakeholder-centric approaches.

Government-led initiatives and policies

The Government of Pakistan has implemented several initiatives to support the textile industry flourish sustainably through best ESG practices.

The Textile and Apparel Policy 2020-2025 is one notable step that aims to boost textile exports, enhance industry’s compliance to the global ethical and environmental requirements and promote nation-wide skill development and employment. The policy is committed to making Pakistan a global sustainable sourcing hub, as it encourages the transition to energy efficiency, circular economy and investment in sustainable technologies.

Ministry of Commerce, in thorough consultation with the industry stakeholders, has established the first-ever National Compliance Centre (NCC) that aims to enhance transparency and accountability by monitoring and enforcing compliance with relevant regulations, particularly concerning worker rights, safety, and environmental sustainability.

These along with other significant initiatives on skill development and TVET (Technical and Vocational Education and Training) programmes indicate government’s robust commitment to promoting social sustainability, environmental stewardship, circularity and good governance in Pakistan’s textile industry.

Addressing challenges and seizing opportunities

Despite several exceptional initiatives, challenges persist in the textile industry. Supply chains need to be more transparent regards to regular data disclosures on labor practices, environmental impact and working conditions. Transparency efforts in this area must include the implementation of codes of conduct, factory inspections, and worker empowerment programs.

More efforts are required to comply with environmental protocols concerning water conservation, greenhouse gas emissions, and chemical pollution. Transparency initiatives such as the use of eco-friendly materials, energy-efficient practices, and environmental reporting must be included in this area.

By embracing sustainability, Pakistan’s textile industry can not only address environmental and social challenges but also unlock new opportunities for growth, innovation, and competitiveness in the global market. These opportunities include access to new markets by meeting consumer requirements, increased profitability by manufacturing sustainable high value-added products, cost savings by improving resource (water and energy) efficiency, less risk of non-compliance penalties and reputational damage, enhanced competitiveness by producing innovative products, improved reputation and supply chain resilience.

Consumer trends and market dynamics

Pakistan’s textile industry is witnessing a resurgence fueled by reforms, attracting attention as a cost-effective labour source amidst shifting global dynamics. As consumer trends favour smaller order volumes, Pakistan’s advantage in fulfilling such orders efficiently has become evident, while sustainability imperatives and ESG compliance underscore the need for industry players to adapt. Initiatives promoting gender inclusion and labor wellbeing further enhance the industry’s appeal, positioning it for sustainable growth and competitiveness in international markets.

Industry collaboration

Pakistan’s textile industry continues to forge ahead on its ESG journey through active participation in international trade and textile events/exhibitions such as Heimtextil 2024. Spearheaded by the Trade Development Authority of Pakistan (TDAP), the industry emphasizes sustainable production and innovation, as showcased by esteemed entities like Sadaqat Limited and Lucky Textile Mills.

The introduction of ‘Econogy’ underscores the industry’s focus on integrating economy and ecology for long-term success. Similarly, Pakistan’s participation in the 31st Dakar International Trade Fair 2023, supported by the Pakistan Embassy in Senegal and TDAP (trade development authority of Pakistan), showcases a diverse range of products while fostering business connections and promoting Pakistani goods.

This collective effort reflects Pakistan’s manufacturing prowess and export potential in the global market, reinforcing its position as a key player in the textile industry.

Conclusion

As global markets increasingly prioritize sustainability, Pakistan’s textile industry is adapting to remain competitive. Initiatives aimed at improving ESG compliance, along with support from governmental and non-governmental organizations, are essential for driving sustainable practices across the value chain.

By embracing sustainability as a strategic imperative, Pakistan’s textile industry is securing its position in international markets but also contributing to long-term environmental and social welfare.

By Shahid Sattar | Muhammad Mubasal

The global textiles and apparel trade is witnessing a significant transformation, shifting emphatically towards man-made fibers (MMF), which now constitute approximately 63% of global textiles and apparel trade, earning them the title “fiber of the future”.

However, Pakistan’s textile sector stands at a crucial crossroads, predominantly tethered to cotton-based exports that account for almost 67% of its total textile and apparel exports while MMF based exports account for a mere 12%, thus sidelining itself from the burgeoning MMF market. This reliance on cotton not only highlights a missed opportunity in an evolving industry but also underscores the necessity for Pakistan to diversify and enhance its textile exports towards MMF to overcome economic challenges and enhance its competitiveness in the global textiles landscape.

Despite being among the top 25 textile and apparel exporters, Pakistan has one of the least diversified export baskets. To gauge the idea, around 1% of the product space accounts for around 65% of the exports consisting of denim and non-denim fabrics and apparel, knitwear, socks, home textiles and towels.

Moreover, Pakistan’s textile and apparel exports are highly concentrated in cotton-based products whose share in global trade has shrunk from 40% to 33% between 2007 to 2021while MMF-based textiles and apparels’ share grew from 30% to 35% during the same period. Since 2007, Bangladesh, India, China, and Vietnam have experienced an increase in the share of MMF-based exports, however, Pakistan has not seen an increase in their exports. Also, the share of cotton-based exports has declined for the other countries. For Pakistan, it effectively means that it’s competing for a larger piece of a shrinking pie.

There are two main factors behind the lack of growth in MMF-based exports. First, the industry lacks the production capacity necessary to manufacture MMF-based products. Second, and more importantly, investment in MMF-based manufacturing capacity has been disincentivized by economic distortions, especially in the realm of trade policy.

PSF is the basic raw material required for the MMF production, and purified terephthalic acid (PTA) is the main input for the manufacturing of PSF. As it stands, there is a 5% import duty on PTA and resultantly a cascading import duty of 7% on PSF with an additional anti-dumping duty of 12% on PSF.

The duties on imports were raised from 4% and 6% to 5% and 7%, respectively, in June 2016. However, Pakistan’s sole PTA manufacturing facility, using outdated technology is already outcompeted by newer, more efficient facilities in China and India. The plant survived on cheap gas ($4/MMBtu) for conversion from paraxylene to PTA and subsidized by high duties on imported PTA/PSF at the expense of the export sector. Following recent gas pricing reforms, the plant’s operational viability has vanished, leading to the argument that the 5% duty on PTA is unnecessary and should be eliminated along with a reduction in PSF import duty to 2%.

Figure 1 Import and anti-dumping duties on PSF have created opportunities for rent-seeking in the domestic market leading to an anti-export bias.

Moreover, in the PSF domain there are only 3 major manufacturers that enjoy a protected monopoly due to the imposition of 7% import duties and up to 12% anti-dumping duties on imports of cheaper and higher quality PSF. Effectively, this has created opportunities for rent-seeking in the domestic PSF market that Pakistani PSF manufacturers have capitalized on by keeping domestic PSF prices significantly above international prices (Figure 1). Higher PSF prices are further enabled by import LCs faced by the spinning industry.

This rent-seeking behavior is further enabled by the National Tariff Commission (NTC) of Pakistan. Adam Smith’s famous law of invisible hand which states that people who intend only to seek their own benefit are led by an invisible hand to serve a public interest which was not part of their intention. Conversely, Milton Friedman’s concept of ‘reverse invisible hand’ suggests that people who intend to serve only the public interest are led by an invisible hand to serve private interests, which was not part of their intention.

This has been the case with anti-dumping and import duties on Polyester Staple Fiber (PSF). National Tariff Commission actions, intended to protect the domestic market and support the broader public interest, have unintentionally favored a small group of domestic manufacturers. This has come at the expense of a larger group of exporters, highlighting the unintended negative consequences of protectionist trade policies.

In case A.D.C.No.33/2015/NTC/PSF dated February 02, 2016, according to Para 33.3, the three domestic producers account for 97.48% of the total domestic production of PSF. While in the case A.D.C No. 59/2021/NTC/PSF dated February 03,2022, according to Para 9.2, the same producers account for 100% of the domestic production. It clearly indicates that the three producers have a monopoly over the domestic PSF market.

Also, in case ADC No 33, para 12.2.1.1, it is clearly stated that the products being used by the domestic industry are not being produced locally and hence in 2015, varieties of colored PSF and regenerated PSF were exempted from the investigation. In 2021, the commission determined that the domestic and imported product are ‘like products’ due to similarities in their physical, chemical and end use cases.

However, in the case ADC No 59, according to Para12.2, the commission terminated the change circumstances review and conducted only the sunset review, concluded that anti-dumping duties must be imposed on exporters of PSF from China. If the domestic producers had started producing the products required by domestic consumers, then it should have conducted a change circumstance review. Due to the above reasons, it necessitates a change circumstance review to determine the import and dumping duties.

Furthermore, as detailed in para 35 of ADC No.33 and para 50 of ADC No. 59 under ‘Price Effects’ and their respective sub-sections titled price undercutting, price suppression and price depression, there is a noticeable similarity in the price-effect patterns in both instances. This similarity strongly indicates that domestic PSF producers, when faced with competition from international counterparts, resort to masking their lack of competitiveness and inefficiencies by seeking refuge in import and anti-dumping duties. It appears that the commission consistently aids them in this approach.

Additionally, within para 18.2 of ADC No 33 and para 22.2 of ADC No 59, titled ‘Confidentiality’, crucial information and data pertaining to the applicants, including their production costs, sales figures, and pricing details etc., were classified as confidential. Disclosing this information could have facilitated a more transparent process and outcome. The lack of access to this data suggests that any decision benefiting the applicants might imply collusion on the part of the NTC.

Moreover, it raises questions as to why these three entities are regarded similarly to public enterprises, using their lack of international competitiveness as grounds for protectionist policies. Typically, in economics, a non-competitive private entity would be shut down. However, public enterprises are treated differently, often receiving support through expansion, or protectionist policies, thanks to their access to extensive financial and political resources, which perhaps is not the case or domain for the Lotte PTA plant.

This situation exemplifies the issue of concentrated benefits and dispersed costs. By levying import and anti-dumping duties, a small group of manufacturers reaps the benefits, while the burden of these costs is spread across a wide array of exporters. The domestic manufacturers are aware that the removal of or reduction in these duties would primarily disadvantage them, prompting their advocacy for continued protectionism through such duties.

The imposition of high duties on PSF significantly undermines Pakistan’s textile exports by making the production of MMF economically unfeasible. This situation is discouraging for domestic textile and apparel firms considering investments in MMF production. The disparity is stark when comparing the cost of PSF in Pakistan to international rates; for instance, textile exporters in China can acquire PSF at 91 cents (Rs 255) per kg, whereas in Pakistan, the price soars to around Rs 362 per kg, marking a 40% increase. Given the elevated costs of both PSF and PTA, manufacturing MMF is neither viable in the domestic market nor competitive internationally.

This leads to an understanding that the primary contributors to the unusually high PSF prices in Pakistan are the extensive import duties on PTA and PSF, coupled with additional anti-dumping duties on PSF. Moreover, the situation is exacerbated by the ability of local manufacturers to maintain inflated prices, a consequence of the import Letter of Credit (LC) restrictions confronting the spinning industry. These factors collectively stifle the growth of the MMF sector, highlighting the urgent need for policy revision to alleviate the burdens on the textile export market.

The need to reevaluate import and anti-dumping duties becomes critical, especially now that nearly half of Pakistan’s PSF-based spindles are shut down. As the industry aims for an export resurgence amid rising demand in major Western markets, the domestic supply of both cotton and PSF is insufficient to operate these machines. This shortage is compounded by local PSF manufacturers operating at reduced capacities due to the diminished demand for PSF, a result of Pakistan’s PSF prices being significantly higher than those of its regional rivals. Lowering the import and anti-dumping duties on PSF would facilitate enhanced production levels across the supply chain, leading to increased exports and job creation.

“Lastly, enhancing the exports of MMF is pivotal for bolstering Pakistan’s textile exports, a crucial step for the country to emerge from its ongoing economic difficulties. Increasing MMF exports would diversify and strengthen Pakistan’s export portfolio, making it more competitive globally and instrumental in its economic recovery.”

By Shahid Sattar | Asim Riaz

Pakistan’s generation capacity, encompassing northern hydel, southern nuclear, and coal sources, requires strategic solar plant installations at the DISCOs’ 132kV level. This should be facilitated by allowing power-wheeling through B2B contracts at a Use of System/Wheeling Charge of 1 US cent/kWh that allows for competitive end-user prices.

These installations are intended to serve local loads, reducing daytime transformer load and transmission losses on both the 500/220kV and 220/132kV networks. To prevent evacuation constraints, it is essential to distribute solar power evenly across the nation.

Seasonal grid instability challenges in Pakistan–I

Such equitable deployment can reduce transmission investment by aligning with lower integration costs, optimize the grid, and limit curtailments in oversized solar PV plants. Furthermore, Pakistani industries need to invest in solar PV installations to comply with international regulations on carbon emissions like the EU’s Carbon Border Adjustment Mechanism (CBAM), which is vital for maintaining competitiveness in global markets.

1. Inadequate Reactive Power Support and Voltage instability

In very long transmission lines, increased capacitance amplifies voltage, leading to network instability. This instability, particularly the Ferranti effect in long, lightly loaded lines, occurs when line capacitance surpasses inductive reactance, especially in grids with distant generation and load centers.

Electric tripping in these networks can trigger cascading failures, causing voltage or frequency fluctuations. Such stress may result in chain reaction of failures from an initial fault, further destabilizing the system and potentially causing brownouts and blackouts.

The bulk network’s insufficient number of reactors fails to maintain network voltages within acceptable limits, causing significant over-voltage issues in winter. To address this, the system operator frequently has to deactivate numerous lines, thereby reducing transmission capacity reserves essential for handling contingencies,.

Given the network’s complex operational conditions, there is a need for dynamic reactive power support such as Static Var Compensators (SVCs), STATCOMs and Synchronous Condensers at various points, which is presently lacking.

1. Inadequate Grid Monitoring and Technology available for the System Operator

The system operator faces significant challenges in grid monitoring due to outdated data acquisition systems and inadequate investment in grid infrastructure modernization. This results in a lack of real-time grid information, with over 60% of the network not being monitored in real-time and relying on outdated communication methods like fax and phone.

The incomplete implementation of the SCADA system at the National Transmission and Despatch Company (NTDC) covers only about 20% of the Grid further impacts operational control and grid management. This, along with outdated operational procedures, poses challenges in handling increased load capacity and ensuring grid stability. The situation highlights the critical need for timely upgrades and modernization of Pakistan’s grid infrastructure to enhance grid management and decision-making capabilities.

1. Policy and Market Dynamics

The rapid expansion of installed capacity in Pakistan’s power sector is largely attributable to the Government’s investor-friendly initiatives for Independent Power Producers (IPPs). These initiatives offer sovereign guarantees for power purchase agreements, ensuring high and guaranteed returns.

This approach significantly lowered investment risks, leading to a surge in investments in power generation and a swift increase in generation capacity. However, this growth in capacity quickly surpassed both the actual electricity demand and the development of the Transmission & Distribution (T&D) network, resulting in both excess capacity on the supply-side as well as unmet demand.

This situation highlights the challenges in balancing aggressive capacity expansion with demand dynamics and emphasizes the need for more demand-driven approaches in power-sector planning and development.

The energy and power sector’s sensitivity to pricing dynamics highlights the need for policies that are not only market-based, transparent, and stable, but can also adapt to evolving market conditions, technological advancements and grid modernization.

Such policies should encourage investments in infrastructure modernization and renewable energy sources, thus promoting environmental sustainability and energy security. Moreover, regulatory frameworks must be agile, effectively accommodating the rapid changes in energy consumption patterns and the growing demand for electricity. Generation focused policies with fixed returns that monopolize profit and socialize risk, should instead have been market based.

Emphasizing energy efficiency and demand-side management is crucial for mitigating technical and operational challenges in the energy sector. It is important to note that during winter months in Pakistan, gas consumption in residential sectors, particularly among middle- and high-income households, increases significantly.

These households experience an increase of over 400% and 700%, respectively, for water and space heating requirements. To address this, a shift in space heating from gas to electricity using heat pumps—devices that transfer heat from cooler spaces to warmer spaces—is required.

In Pakistan, where domestic power demand constitutes over half of the total and shows high sensitivity to weather variations, effective Demand Side Management (DSM) is imperative. Key DSM strategies include the implementation of Advanced Metering Infrastructure for improved monitoring, Demand Response Techniques to adjust usage during peak times, and a focus on efficiency and conservation through passive solar designs and enhanced insulation.

1. Economic Dispatch vs Grid Reliability

The first priority of the System Operator, i.e., National Power Control Center (NPCC), is ensuring system reliability and safety to maintain voltage and frequency limits and prevent overloading. This is crucial to avoid brownouts and blackouts. Subsequently, considerations such as fuel constraints, hydro resources, and policies are taken into account, followed by economic dispatch according to merit order.

The challenge arises from the uneven geographical distribution of cost-effective and reliable power generation resources across the network necessitates Security-constrained Economic Dispatch. However, these issues often result in extensive debates between the System Operator and the National Electric Power Regulatory Authority (NEPRA) during hearings on economic dispatch.

Frequently, plants are dispatched out of merit order to support local voltage and grid reliability, while more economical resources are curtailed to maintain operational reserves. Under significant pressure to implement economic dispatch, the System Operator is often compelled to make compromises on grid reliability to minimize financial losses.

1. HR Capacity Constraint of the System Operator

• The System Operator’s workforce issues extend beyond high turnover and slow hiring. It also struggles with inadequate training programs, leading to a skills gap in critical areas like system security and advanced technology.

Additionally, budgetary constraints limit the ability to offer competitive salaries, further complicating recruitment and retention efforts. The lack of a robust succession planning and staff development strategy exacerbates these challenges, risking long-term operational efficiency and system reliability.

Conclusion

The combination of these factors – seasonal variability in power generation, maintenance challenges, industrial grid connectivity issues, a capacity trap, power system management complexities, infrastructure investment gaps, policy and market dynamics, along with geographical and technical constraints – collectively increase the likelihood of blackout winters in Pakistan.

To effectively prevent brownouts and blackouts requires a comprehensive approach that encompasses regular maintenance and upgrading of power infrastructure, including plants and transmission lines. Enhancing grid management with advanced monitoring systems, diversifying energy sources with a blend of renewable and traditional options, and implementing dynamic load management are keys.

Additionally, strengthening the training of system operators, investing in modernizing grid infrastructure, updating policy frameworks, and developing emergency response plans are essential. These efforts, combined with improved grid monitoring and balancing economic dispatch with grid reliability, will contribute significantly to the reliability and stability of the power sector.

By Shahid Sattar | Asim Riaz

Brownouts and blackouts are critical issues affecting the stability and reliability of power supply systems in Pakistan. A brownout is a partial, temporary reduction in power availability, often indicated by a voltage drop in the system.

This phenomenon usually occurs when the power system is under stress, possibly due to high demand or infrastructural limitations.

In contrast, a blackout is a more severe condition, characterized by a complete loss of power in a specific area, typically caused by overloads, system failures, or significant malfunctions in the power grid.

Both brownouts and blackouts can have a profound impact on the entire economy, including businesses and healthcare, thus emphasizing the need for a robust and reliable power infrastructure.

In this article, we investigate the challenges of Pakistan’s power sector, focusing particularly on the risk of blackout winters. We examine the effects of seasonal changes in power generation, such as the decline in hydroelectric power and gas supply limitations in winter.

We explore the phenomena of brownouts and blackouts, their causes, and their broader implications for power infrastructure. We delve into operational challenges, such as maintenance outages and the management of frequency reserves, as well as issues related to industrial demands and grid connections.

 

Our focus extends to the capacity trap in generation, complexities in power system management, investment deficits, policy dynamics, and technical constraints. Ultimately, the need for holistic solutions to enhance grid reliability and prevent blackout winters encompasses all aspects of power sector vulnerabilities.

Seasonal variations and generation capacity trap

Pakistan’s power generation, dominated by baseload capacities like nuclear, coal, and CCGTs, faces significant challenges in meeting the country’s fluctuating demand. Reliance on imported fuels (i.e., coal and LNG) coupled with financial constraints faced by the economy adds considerably to the power system’s vulnerability and leads to high capacity payments due to suboptimal utilization.

Hydroelectric power, a major component of Pakistan’s energy mix, is heavily influenced by seasonal variations that can be attributed to the country’s dependence on water flows for agriculture and the inherent nature of hydrological cycles that are vulnerable to weather extremes and shifting patterns.

As a result, hydroelectric generation drops significantly during winter months, causing a sizable reduction in overall power generation capacity. For instance, during FY22, Pakistan’s hydroelectric generation peaked at 7,561MW in August while the minimum output was recorded at 697 MW in January, compared to the total installed hydroelectric capacity of 9,477 MW.

Similarly, reduced gas supply during the winter also impacts generation from Gas Power Plants due to load profiling of Residential Piped Natural Gas Consumers, further limiting power production.

With an industrial base load of around 8 GW at present, large seasonal and intra-day variations in grid electricity make surplus capacity very expensive. On August 21st, 2023, for instance, the National Transmission and Dispatch Company (NTDC) supplied 25.5 GW of electricity at midnight, with approximately 17.5 GW catering to the seasonal demand for ventilation and air conditioning, i.e., cooling loads. Notably, the installed capacity of 22 GW in FY14 was sufficient to meet industrial demand of 7-8 GW.

The subsequent escalation in electricity demand and prices can therefore be attributed to higher consumption in non-productive sectors, particularly for cooling and ventilation.

It is important to note that hydropower plants are modeled based on their characteristic monthly minimum and maximum available capacities, along with their average monthly generation.

With more than a dozen new hydropower projects being installed, there is a clear indication that the future of energy in Pakistan hinges on adapting to seasonal patterns and integrating various forms of renewable energy to ensure a stable and reliable supply of electricity.

Moreover, operational constraints require nuclear and RLNG plants to run at a minimum capacity of 70%, and coal plants at 50%, leading to inefficiencies during low-demand period.

Consequently, the current generation mix, despite its diversity, struggles to match the variable demand and seasonal hydropower availability, resulting in underutilization of large fossil fuel plants due to financial and grid optimization limitations.

Operational challenges: frequency management and grid stability

Investment in transmission and distribution infrastructure, focused on short-term fixes rather than long-term solutions such as grid optimization and flexible generation, has not kept pace with the expansion of generation capacity, leading to overburdened systems and supply bottlenecks.

This, coupled with insufficient funding exacerbated by mounting circular debt, has caused serious transmission issues and network bottlenecks, with many sections operating above capacity. Additionally, managing frequency reserves, crucial for stability, especially during reduced generation, is challenging due to insufficient operating reserves, limiting backup power during demand spikes or generation drops.

The system has a reduced number of operational generating units, which leads to low inertia. Inertia is important for maintaining grid stability and the ability to recover from disturbances.

A lack of sufficient operating units makes the system more vulnerable to outages. Additionally, maintaining large spinning reserves to align with the biggest thermal generation units introduces additional operational and financial complexities.

Under severe outage events, all power plants must provide adequate frequency support. This support becomes crucial for the low-inertia system under very low load demands, such as during winter months.

Allegedly, power plants, especially IPPs, do not provide sufficient frequency support, leading to the system’s inability to restore its frequency and resulting in blackouts.

Furthermore, fog and smog can cause short circuits in transmission and distribution networks due to their moisture-laden conductive particles, leading to network tripping, brownouts, and operational disruptions that affect power supply stability and reliability.

The reduced visibility associated with these conditions further complicates network monitoring and maintenance.

The integration of High Voltage Direct Current (HVDC) systems into the network has improved south-to-center power flow, reduced bottlenecks, and enhanced transmission reliability. However, it has also introduced additional complexity, especially during HVDC line outages. The System Operator continually faces challenges in balancing AC and DC power flows under various operating conditions to ensure grid security.

Grid resilience through industrial solar integration

A significant portion of Large Scale Manufacturing (LSM) sectors, such as fertilizers, cement, sugar, and textiles, are not connected to the national grid, leading to an underutilization of available power generation capacity. Industries remain disconnected from the grid due to reliability and quality concerns, exacerbating the demand-supply mismatch.

In the last two years, Pakistan has witnessed the closure of numerous textile industries, looms, mills, and ice factories, with nearly half of its paper mills disappearing from the industrial landscape. This decline can largely be attributed to exorbitant electricity tariffs, which are two to three times higher than those in regional countries, placing a significant burden on these businesses.

Only those businesses with higher profit margins and efficient machinery are likely to endure.

Frequent electricity supply interruptions, equipment breakdowns, and voltage instability starkly contravene the regulatory standards set forth by power regulator NEPRA in the Distribution Code, compelling industries to seek self-generated power solutions to ensure operational continuity and stability. Industries in Pakistan are confronted with the necessity of maintaining Captive Power Plants (CPPs).

This necessity is driven not only by economic considerations but also by the unique energy challenges and infrastructure limitations faced by industries in Pakistan.

The power system often experiences electricity shortages, grid instability, and frequent power outages, which can significantly disrupt industrial operations.

To mitigate these challenges and ensure a continuous power supply, many industries in Pakistan have had to invest in Captive Power Plants (CPPs), which provide a reliable backup source of electricity, helping industries maintain production levels and avoid costly downtime. However, the financial burden of establishing and maintaining CPPs is a challenge not commonly encountered by industries in countries with more stable electrical grids.

By Shahid Sattar | Amna Urooj

In the evolving Textile Value Chain (TVC) of Pakistan, the key to sustained exports lies in the traceability of the supply chain. Beyond being a cornerstone of the country’s economy, the TVC stands as its largest and one of the oldest manufacturing industries, contributing approximately 60% to the nation’s total exports and playing a crucial role in international trade.

Directly engaging nearly 40% of the manufacturing labour force — approximately 3 million people — and indirectly impacting 9 million more, the industry impressively contributes 8.5% to the GDP.

As the TVC navigates the complexities of integrating traceability into its operations, it faces a transformative journey that aligns with global trends, where traceability is not only a regulatory imperative but a strategic tool for optimizing business operations and ensuring accountability in far-reaching supply chains.

This way or the other, Pakistan needs to expand its market to sustain its export, and for this traceability through integrated factories is an inescapable component.

While textiles have long been a major player in Pakistan’s economy, approximately 80% of firms still operate in a non-integrated structure. Nevertheless, the industry successfully exports 70% of its total output.

In the integrated sectors, each participant contributes to the value addition of textile goods. The paradox of a long-standing economic powerhouse with predominantly non-integrated factories highlights both the resilience and challenges encountered by the Textile Value Chain (TVC) in Pakistan.

According to the records of the Textile Commissioner’s Organization, the textile sector comprises 408 units, including 40 composite and 368 spinning units. Together, these units house 13.414 million spindles and 140,000 rotors, with 9.5 million spindles and 112,600 rotors currently operational. The reported capacity utilization rates for spindles and rotors during July to March in fiscal year 2023 are 69.33 percent and 71 percent, respectively.

Pakistan is the fifth largest producer, third largest consumer and 4th largest exporter of cotton yarn in the world; however, the average size of spinning mills in Pakistan is comparatively smaller than the global standard, rendering them less competitive, particularly with small spinning units lacking modern technology and producing yarn counts below global market demands.

Integrated textile factories offer several advantages that contribute to their operational efficiency and product quality. Firstly, they achieve cost efficiency through economies of scale. They control the entire production process from raw materials to finished products, thereby reducing overall costs, especially through the avoidance of turnover tax at each stage.

Secondly, integration provides better control over the supply chain, ensuring efficient and streamlined operations. This leads to consistent quality throughout the production process, as integration allows for rigorous quality control measures. Additionally, the interconnected nature of integrated factories facilitates easier traceability, promoting accountability for each stage of production.

However, it’s important to acknowledge the disadvantages of integrated facilities as well. Firstly, establishing and maintaining such factories can be capital-intensive. Secondly, there’s a risk concentration issue, as a failure or disruption at one stage can significantly impact the entire production process. Lastly, integrated factories may have limited flexibility in adapting to market changes or technological advancements due to their comprehensive and interconnected nature.

In the context of multistage turnover tax, which is levied on the complete value of a product during each transition in the production and distribution process, non-integrated factories face increased gross taxes compared to their integrated counterparts.

This discrepancy arises from the unique tax structure in non-integrated industries, imposing a 1.5% turnover tax at each production stage. Consequently, as a product advances through multiple factories, cumulative taxation occurs. For example, if processed in four factories, the total turnover tax would be 6% (1.5% + 1.5% + 1.5% + 1.5%). The cumulative effect of turnover taxes, being non-recoverable in nature, leads to an increased cost for the final product. This dynamic renders the non-integrated sector less competitive, ultimately diminishing profits.

Moreover, sales tax collection mechanisms vary between integrated and non-integrated factories. Integrated factories often benefit from a sales tax advantage due to comprehensive reporting throughout the entire production process, while non-integrated units suffer in a reduced transparency, resulting in a diminished refund of sales tax at the final export stage (documented by the World Bank).

According to IMF reports, the inclusion of certain cost elements into the product price, facilitated by the sales tax capture refund on exported goods from non-integrated factories, renders the final product less competitive. This complexity in the tax landscape underscores the intricate dynamics influencing the competitiveness and operational efficiency of both integrated and non-integrated industrial entities.

The imposition of duties on raw materials exacerbates challenges for Small and Medium-sized Enterprises (SMEs), particularly as they struggle to avail duty-free benefits in the export duty structure. While large, well-integrated firms can take advantage of duty exemption schemes for exporters, smaller enterprises face difficulties utilizing these tools due to the complexity of application processes.

Consequently, SMEs find it challenging to compete, as these duties significantly inflate production costs throughout the manufacturing process, creating a barrier to competitiveness. Duty-related challenges not only limit the potential for innovation but also obstruct SMEs from aligning with the dominant global trends, such as that of MMF, which holds a 70% share in global trade. This hampers their ability to offer cost-effective products and contributes to the existing textile trade imbalance in Pakistan.

Access to credit presents another notable distinction. Financial institutions naturally consider SMEs as riskier due to their smaller size, limited track record, and insufficient collateral. Consequently, SMEs face difficulties in obtaining loans or credit on favourable terms, often lacking the necessary collateral to meet the criteria set by traditional lenders. Integrated factories, on the other hand, enjoy potentially easier access to credit, thanks to their more comprehensive and stable business model.

“For example, SMEs could not benefit from the Long-Term Financing Facility (LTFF), designed for export-oriented projects with specified annual export values. This exclusion highlights potential challenges for non-integrated units to access certain financial incentives, paralleling the situation observed with the Export Refinance Scheme (EFS), where specific commodities, including raw cotton and various yarn types, are placed on the negative list, thereby restricting eligibility.”

Flexibility is a key aspect worth noting, particularly in integrated textile industries, where importing for re-export can enhance efficiency and ensure a steady supply of raw materials. It’s an important consideration, albeit one that may heighten dependence on foreign suppliers. In contrast, non-integrated industries, might prioritize domestic sourcing for better control. However, when these non-integrated industries engage in importing for re-export, they could encounter coordination challenges.

Lastly, traceability in the Pakistani textile industry varies. Integrated factories benefit from easier traceability due to the centralized nature of their production process, while non-integrated factories may find traceability more challenging due to the involvement of multiple entities in different stages of production.

On the other hand, non-integrated textile factories offer several advantages, most notably specialization. By focusing on specific stages of the production process, these factories can achieve a high level of expertise and efficiency in their chosen areas which also results in them being less energy intensive.

This focused approach allows for targeted resource allocation, contributing to a more sustainable and energy-efficient manufacturing model. The model also allows for increased flexibility, enabling quick adaptation to market demands and technological advancements. Additionally, the distribution of risks across different stages mitigates the impact of failures, enhancing the overall resilience of non-integrated factories.

The discourse on integrated vs non-integrated textile units is also important in terms of sustainable practices. The impact of processes like picking, transportation, and ginning on cotton quality is particularly relevant here. Integrated units, have the potential to implement more coordinated and sustainable practices across picking, transportation, and ginning.

This comprehensive approach allows for better control over the entire supply chain, leading to improved cotton quality and reduced environmental impact. In contrast, non-integrated units face challenges in maintaining consistent and sustainable practices throughout the entire cotton processing cycle.

Addressing sustainability concerns in picking, transportation, and ginning becomes imperative for both integrated and non-integrated units in Pakistan, emphasizing the industry’s need to adopt eco-friendly methods and ethical sourcing practices to ensure the production of high-quality and environmentally responsible textiles.

Non-integrated textile factories face severe challenges. Coordination and communication hurdles between different entities involved in the production process can lead to inefficiencies. The dependency on external suppliers introduces risks related to variations in material quality and delivery timelines.

In addition, higher transaction costs may accrue due to the need to manage relationships with multiple suppliers and entities. Pakistan’s standalone spinning units are increasingly becoming incompatible with the competitors. Globally, textile industry enterprises are moving towards full or partial integration, emphasizing a shift to value-added processes as a vital survival strategy.

To remain competitive and relevant in the evolving textile sector, Pakistan should align itself with this trend. The imperative for standalone spinning units to integrate and diversify their offerings, including high fashion garments and other value-added products, is highlighted by the significant difference in export potential between integrated and non-integrated units. Integration is not just a necessity but a crucial imperative for survival in the competitive landscape.

Pakistan’s textile sector, with 408 units and challenges in small spinning units, leans towards non-integration, emphasizing the need for addressing issues like outdated technology and credit access. In contrast, Bangladesh’s textile industry, represented by the Bangladesh Textile Mills Association (BTMA) overseeing 510 yarn manufacturing mills and 901 fabric manufacturing mills, demonstrates a higher level of integration, fostering collaboration across different stages.

Meanwhile, India’s textile landscape, marked by over 3400 mills and an extensive capacity, indicates a substantial degree of integration.

In conclusion, the imperative for an integrated track and trace system within Pakistan’s textile value chain (TVC) is underscored by its pivotal role in shaping the future of this critical industry. The current landscape, characterized by a significant yet limited number of integrated textile factories, emphasizes the necessity of integrating non-integrated facilities, particularly Small and Medium-sized Enterprises (SMEs). This strategic shift is paramount to fully unlocking the potential offered by the GSP+ status and expanding into untapped markets, such as the European sector for Man-Made Fibers (MMF).

A positive initiative by the Government of Pakistan is the establishment of the National Compliance Center, aimed at enhancing labour compliance, social responsibility, and environmental standards. In collaboration with the Ministry of Commerce, this initiative is the first of its kind in Pakistan and has garnered support from political leaders, industry representatives, and international development partners, including the ILO (International Labour Organization).

The center adopts a cluster approach, addressing various industry concerns such as traceability, sustainability, and quality assurance. This development signals a pivotal step in restructuring business practices, compelling SMEs to comply with the NCC for improved traceability and adherence to labour and environmental standards.

While this step addresses the issues of labour compliance, social responsibility, and environmental standards to some extent, it doesn’t explicitly tackle the factor of profitability between integrated and non-integrated industries for the further expansion of Pakistan’s export base. However, more comprehensive measures and strategic policies are required to bridge this gap and foster sustained growth in the export sector.

By Shahid Sattar | Muhammad Mubasal

Energy is pivotal for growth, yet Pakistan’s situation is grim. Despite possessing abundant resources, its energy landscape is plagued by inefficiencies and distorted consumption pattern. This complex issue is multifaceted that intertwines to shape the current energy paradox.

The energy to GDP conversion rate serves as a key metric to gauge an economy’s energy efficiency and measure how effectively a country uses energy to generate output and income. A higher rate in this regard means the country is more efficient at converting energy into economic output.

To put things into perspective, Bangladesh’s conversion rate of $6.13 million/ktoe is twice that of Pakistan’s, which stood at $3.3 million/ktoe. This significant difference underscores Bangladesh’s superior energy efficiency and effective allocation of resources, setting a regional benchmark.

Interestingly, a key factor in Bangladesh’s higher efficiency is the declining energy demand within its industrial sector. This trend indicates greater energy efficiency in industrial processes, contributing to the country’s overall energy performance.

 

A further analysis reveals that the largest share of Bangladesh’s gas consumption, about 40%, is by its power sector, followed by industry (19%) and captive power (18%), with domestic consumption trailing at 13%.

The pattern shifts for electricity, where the domestic sector emerges as the primary consumer, accounting for 52%, followed by commercial 25% and industrial use 13%.The gas, being a more affordable energy source, is allocated to industries, while the more expensive energy sources are directed towards households. This approach achieves a balance and results in a higher conversion rate compared to regional counterparts.

Meanwhile, India, although not leading in the conversion rates, has demonstrated noteworthy progress in its energy efficiency.

The country’s GDP per unit of energy used increased from $2.30 million/ktoe in 2010 to $2.94 million/ktoe in 2022. This improvement can be partly attributed to India’s service sector-led economic growth, which is inherently less energy-intensive than industrial sectors.

However, a large portion of India’s energy—approximately 41%—is consumed by its industry, compared to 26% for domestic use. Despite India’s effective resource allocation, its transport sector, marked by high inefficiency, is a major contributor to the country’s overall low energy efficiency, consuming a substantial share of its energy resources.

Pakistan, for its part, has seen improvement in its energy conversion rate, increasing from $2.8 million/ktoe to $3.3 million/ktoe in 2022. This increase suggests a growing economic value from its energy use, driven by sectors such as manufacturing, agriculture, and services.

However, Pakistan’s energy consumption pattern poses a unique challenge. A large portion of its electricity, around 46%, is consumed by its non-productive domestic sector, while the industry accounts for 28%. When it comes to natural gas, the domestic sector again has a higher consumption rate at 20%, compared to the industrial sector’s 18%. Pakistan has the most inefficient allocation of resources among the countries.

For instance, gas, a more affordable energy source, is predominantly supplied to households, which contribute the least to the GDP.

In contrast, industries receive more costly energy forms and incur higher expenses due to subsidies provided to households for energy cost reduction. Moreover, the policy of providing energy to households at very low prices strains the industries through a higher tariff which, as a consequence, includes cross-subsidy, adversely affecting their competitiveness in the global market. Despite having a lower industrial energy consumption than India, Pakistan’s industry exhibits greater efficiency.

Further compounding the issue is Pakistan’s heavy reliance on fossil fuels, which account for 64% of its total energy, hydropower contributes 27%, and the remaining 9% comes from other renewables and nuclear power. This reliance on fossil fuels not only makes energy less affordable but also exposes the country to vulnerabilities in energy supply disruptions.

Bangladesh faces a similar dilemma. Due to its high reliance on fossil fuels to generate electricity, it is also facing the issue of energy affordability. The country’s energy portfolio is composed of 99% fossil fuels, with dominant contribution of natural gas at 67%. However, its energy affordability problem is being partially compensated by its gains in energy efficiency.

In stark contrast, India’s approach to energy significantly differs, with a strong focus on renewable sources, setting it apart from the fossil fuel reliance prevalent in Pakistan and Bangladesh. By investing in renewable energies like solar and wind, India has achieved more cost-effective energy solutions and competitive market prices, thus carving a unique niche for itself in the regional energy sector.

The analysis of energy efficiency and energy consumption’s impact on economic growth brings to light the importance of formulating energy policies that are specifically designed to suit the unique circumstances of each country.

For Pakistan, improvement in the industrial sector’s energy efficiency reveals a competitive response to global market pressures, in stark contrast to the domestic sector’s apathy towards energy conservation.

A consequence of ineffective and below-cost energy pricing strategies leading to severe misallocation of resources. It’s imperative to acknowledge the substantial role of energy prices in diminishing energy intensity via efficiency improvements.

Ration-alizing energy prices is crucial to incentivizing energy conservation and efficient use through, for instance, adoption of more efficient appliances. As energy prices are rationalized, any increase in prices should be counterbalanced by improved energy efficiency. Hence, it is urgent and essential to aggressively implement pricing policies that will curb the excessive energy demand of the domestic sector.

Gas appliances and any inefficient products in the market are a direct threat to energy conservation and their use must be regulated, including through benchmarking of energy efficiency.

The government must enforce minimum energy performance standard (MEPS) and stringent labeling regulations. No appliance should be allowed to enter the market if it does not meet minimum efficiency standards.

This is particularly crucial considering that a significant portion of domestic electricity in Pakistan, over 67%, is consumed by fans and lighting that do not meet modern energy efficiency standards.

This is not just a recommendation but a critical necessity. Such legislation will steer consumers decisively towards energy-efficient products, drastically cutting down the domestic sector’s energy consumption.

In line with these efforts, in 2023, the government took a decisive step by banning the manufacturing and sale of old, high electricity-consuming bulbs and traditional fans as part of its broader energy-saving initiative. These actions are targeted at achieving significant energy savings, potentially up to 9300MW.

Adhering to the new MEPS, newly manufactured fans are now designed to consume only 60W of electricity, which is half of what traditional fans used, while the energy consumption of light bulbs has been capped at 12W.

The shift towards energy-efficient appliances must be urgently mandated, particularly replacing gas geysers with solar alternatives.This measure alone can save up to 500 MMcfd of gas, thereby providing much needed relief to the balance of payments by reducing the import bill by over $1 billion per annum.

Additionally, upgrading gas burners is critical for further domestic energy savings, offering a potential gas conservation of 200 MMcfd at a one-time cost of Rs 2 billion. The proven success of solar water heating systems, like those in Nathiagali conserving 500 tons of fuelwood annually, illustrates the urgent need for a nationwide adoption.

Moreover, key actions like implementing mandatory annual vehicle efficiency testing and effective national load management can significantly optimize energy consumption patterns.

“For the long term, one of the pivotal steps towards achieving this is the immediate implementation of the Pakistan Building Code. This would ensure energy-efficient practices in construction, leading to long-term energy savings. Moreover, Pakistan’s energy policy, which aims for a higher proportion of renewable energy in its power mix — with a target of 30% from wind and solar by 2030 — and the planned expansion of less carbon-intensive energy sources, also signifies a move towards greater energy efficiency.”

Furthermore, industries and companies can play a crucial role in energy conservation. Implementing an Energy Management System (EMS) allows companies to monitor energy consumption data in real-time and identify opportunities for energy savings.

Another effective approach is the use of Building Automation System (BAS), which optimizes heating, cooling, ventilation, lighting, and other systems in offices and industries. It uses advanced technologies like AI and machine learning to identify energy consumption patterns and implement energy-efficient measures. For instance, the Ministry of Energy and Mineral Resources in Indonesia saved 318,700 KWH in 2019 by implementing BAS in their buildings.

In light of these recommendation, Pakistan’s journey towards resolving its energy paradox requires a multifaceted approach. Given its limited resources, the affordability of energy emerges as a looming challenge. Pakistan’s path to economic stability and growth is intricately linked to enhancing its energy efficiency.

The country must urgently address the misallocation of energy resources, incentivize efficient energy use, and adopt innovative technologies and practices across all sectors. By prioritizing energy efficiency, not only can Pakistan meet its economic goals it will also contribute to global environmental sustainability.