Pakistan is facing severe
electricity shortfall of its history since 2006. Several measures have been implemented in order to mitigate
electricity shortage. The focus has been on raising the installed capacity of
electricity generation and transmission. The present policy results in expensive thermal
electricity generation mostly using expensive and environmentally hazardous furnace oil and inability of utilities to recover their cost of supply although there is unprecedented rise in
electricity tariffs. This study concentrates on the
electricity demand and traces the relationship between
electricity shortfalls, tariff rate and
electricity theft in the background of recent
electricity crisis using the data for the period 1985-2010. We employed the Granger causality test through error correction model and out-of-sample causality through variance decomposition method. Empirical evidence shows that
electricity theft greatly influences
electricity shortfalls through lowering investment and inefficient use of
electricity.
The study concludes that electricity crisis cannot be handled without combating rampant electricity theft in the country.