Introduction

In the summer of 2007, Pakistan faced some of the worst power shortages in decades. Power shortages have been endemic in the country, but these shortages were largely due to a surge in electricity demand consistent with, and related to, economic growth. The government did indeed anticipate the shortage, but failed to increase the installed capacity of hydro and thermal power generation. Fuel imports for the power and transportation sector continued to increase, resulting in a large import bill and undermining Pakistan's balance of payments. Aside from this, the promise of bringing electricity and modern fuels to the large number of people living in the rural areas poses new challenges for the government.

Nevertheless, the good news is that the economy has been growing fast and all other macroeconomic indicators are showing healthy signs of improvement. Since 1991, Pakistan has gradually liberalized the economy. Successive governments have carried out a massive reform agenda leading to structural changes in the economy. The current regime took the agenda a step further through privatization and deregulation in the power and hydrocarbon sector. The sustainability of economic growth and the resultant social development will depend on ensuring an adequate and affordable supply of energy.

ECONOMIC AND SOCIAL BACKDROP

Pakistan is one of the fastest growing economies in the world, growing at an average of seven per cent for the last five years (2003–07). All three sectors — agriculture, industry, and services — of the economy contribute to this growth at 15, 25, and 60 per cent respectively. Strong domestic demand continues to support equal growth in consumption (50 per cent) and investment (50 per cent). Pakistan's foreign exchange reserves reached US$16 billion and Foreign Direct Investment (FDI) reached US$7 billion at the end of FY2006–07, having started off from a mere few hundred million at the start of this century.