Subsidization of electricity is a drain on budgetary resources and not sustainable in the longer term when an economy is growing and tax revenues are stagnant. Under the ESRP, electricity subsidies were expected to be eliminated with the establishment of NEPRA, and the tariff was expected to reflect and recover the full cost of production. However, the government continues to subsidize electricity, primarily to domestic and agricultural customers. The process by which subsidies are determined in Pakistan also undermines the credibility of NEPRA and its efforts to create a competitive environment in the energy sector. Electricity subsidization is a politically sensitive issue that will not be easily resolved without strong measures by ADB. In retrospect, the ESRP should have included the elimination of subsidies or, at least, reduction and careful targeting of them in the policy matrix as a condition for tranche release.
Energy Sector Restructuring Program