AN EMPIRICAL ANALYSIS OF ENERGY SHORTAGE IN PAKISTAN

In this paper, the electricity shortage in Pakistan is addressed through an examination of data over the period 1971-2010 with a time-series analysis. The novelty of the study lies in characterizing energy shortages using both an index comprising the demands for electricity, gas and oil, and information on the public electricity supply. This index allows for a simple empirical approach where energy shortages cannot be directly measured as data. The main findings are as follows: first, end consumers adjust their energy demands to prices only in the long run; second, the underutilization of installed power-generation capacity encourages fossil fuel consumption for private electricity; third, an uninterrupted electricity supply could be attained by regulating private electricity generation; and fourth, the relative demand for electricity increases with an increase in real income and then starts to decrease as income increases beyond the threshold of $1,127. Overall, the results of the study suggest that the price adjustment tactics adopted by the Government of Pakistan are not an effective policy to deal with power shortages in the short run. Rather, the Government should focus on improving the utilization rate of installed power plants and on rechannelling the use of oil and gas for public electricity generation. Otherwise, energy shortages will worsen with economic growth in Pakistan.