Quantification of Hidden Cost/Quasi-Fiscal Activities in Electricity Sector of Pakistan

Abstract

The aim of the study is to quantify the hidden costs in the electricity sector of Pakistan and estimate which components contribute more to the hidden cost/quasi-fiscal activities (QFAs). The hidden cost is comprised of three key components: tariff differential subsidies, transmission and distribution losses, and bill collection ratio. Quantifying the hidden costs/QFAs helps policymakers understand the amount of resources that could be generated or saved within the sector. The End-product method is used to quantify QFAs through a hidden cost calculator model for the period 2009-10 to 2021-22. Based on the quantification, it is concluded that tariff differential subsidies are the major contributing component of hidden costs, followed by transmission and distribution losses. Bill arrears are the least significant contributor. The average hidden cost over a 12-year study period amounts to 2.69% of the country's GDP. The study suggests that if the electricity sector works efficiently by reducing transmission and distribution losses, collecting all bill amounts, and eliminating unnecessary subsidies, it could save an amount equivalent to 2.69% of GDP. This saved money could be utilized for investing in electricity infrastructure development. Such actions would alleviate the burden on the government's exchequer and ensure uninterrupted electricity supply, fostering economic growth and improving the standard of living in the country.