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Energy crisis: Fact or fiction

If one looks at the history of power sector in Pakistan, a few points are clear. These include: 1) a myth that the country has been persistently suffering due to the shortage of energy products, 2) the successive power policies have been introduced to serve the interest of local and overseas investors, 3) blatant theft of electricity and gas has been going on with the connivance of employees of utility companies, 4) regulatory authorities have failed in protecting the interest of consumers and remained subservient to the incumbent governments.

ENERGY SHORTAGE

Pakistan is blessed with an enormous potential of hydel power generation. According to the experts Mighty River Indus along has the potential to generate more than 40,000MW electricity per annum. Another 10,000MW electricity per annum can be generated from smaller hydel plants (run of the river type facilities, which does not require construction of dams/reservoirs. In addition to that 50,000MW electricity can be produced annually from Thar coal. However, at present total hydel generation is around 8,000MW, which goes down when water level drops in dams. Thermal power plants (mostly owned and operated by the private) have the lion’s share in the total generation. The share of coal and nuclear power plants in the total electricity generated has remained minuscule. Though, a lot is being talked about changing the energy mix and curtailing use of gas for power generation, a little success has been achieved.

SERVING VESTED INTEREST

Major hydel power generation facilities, i.e. Warsak, Mangla, Tarbella and Ghazi Brotha are located in the northern parts of the country and cater to the needs to Khyber Pakhtunkhwa (KPK) and upper Punjab. Karachi is hub of trading and industrial hub and it is totally dependent on thermal power generation. The city has 10% of the total population of the country but gets nothing from low cost electricity generated from hydel power plants. To be precise, K-Electric supplies electricity to some parts of Sindh and Balochistan. If transmission of hydel electricity to Karachi is difficult or uneconomical, quota allocation of gas to K-Electric should be doubled. Karachi is surviving on self generated electricity, the city has a latent demand of 5,000MW, whereas K-Electric is capable of meeting only half of this demand. One can still recall that in the early nineties E-Electric used to export electricity to Punjab. HUBCO was constructed to primarily meet Karachi’s demand, but it was ‘hijacked’ by WAPDA for meeting Punjab’s demand.

BLATANT THEFT

Blatant theft of electricity and gas been been going on for ages with the connivance of utilities. On top of all some of the parts of Pakistan are provided free of cost electricity. One may recall that at one time the average T&D losses of electric utilities were as high as 40%. Lately, gas UFG, which mostly comprise of theft hover a little less than 10%. On top of this, utility companies carry the load of billions of rupees of receivables, the probability of recovery is very low. According to some analysts, if K-Elecric pays off its outstanding dues, SSGC will be able to pay off almost all the payable amount to E&P companies. Containing theft or recovering outstanding dues does not require any rocket science, but a firm commitment. However, utilities fail completely helpless because of the pressure of political and linguistic groups. It is also necessary to put on record that utilities don’t provide connections, taking refuge behind non-availability of electricity/gas, but are prompt in providing ‘temporary connections, which are often without meters. Analysts term this ‘official kunda’.

REGULATORY AUTHORITIES

The Government of Pakistan (GoP) initiated the process of liberalization, deregulation and privatization. Under this policy, the private sector was encouraged to establish industries, which remained the exclusive domain of the state for decades and it was also offered the stake in state-owned enterprises along with management control. Prior to that, the World Bank has refused to lend more money to WAPDA and the shift in policy gave birth to HUBCO and other IPPs.

IMF RECIPE

Many analysts have the consensus that the International Monetary Fund (IMF) is the lender of last resort, but its recipes are not aimed at enabling any country to ‘stand on its own feet.’ Often the country is trapped in a vicious cycle of borrowing. However, the advantage is that if the country succeeds in developing its own home grown plan and meeting the condition imposed by the IMF, it may overcome the balance of payment crisis.

Pakistan has a long history of remaining under the IMF support program. In one of the latest country report, the Fund has once again highlighted the need to introduce structural reforms for the power sector. These weaknesses identified are: 1) the persistence of circular debt, 2) DISCOs still operating under the state control, 3) high T&D losses, 4) failure to follow corporate governance and 5) lack of the mechanism for passing on input cost adjustments to end consumers.

Emphasizing US$55 billion in planned investments as a part of CPEC, the Fund anticipates improved economic activity made up of 19 Chinese sponsored power sector investments (US$17.7 billion) and non-CPEC energy projects (US$25.4 billion). Mode of financing for energy projects has been bifurcated into: 1) direct borrowing and investment from Chinese financial institutions, and 2) financing of projects by private domestic sponsors as well as government backed borrowing from multilateral lenders.

A detailed analysis of the power sector shows: 1) the country has enormous resources to produce low cost electricity, 2) if pilferage is contained cash flow of DISCOs will improve and 3) circular debt issue will be resolved. Appropriately managed conventional sources of power generation can help in meeting the electricity demand and there may not be an urgent need to invest in alternative sources of power generation.

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