AROOJ ASGHAR (arooj.asghar@hotmail.com)
June 09 - 15, 2008

Pakistan's economy has made a remarkable turnaround in recent years, which many independent experts believe is not entirely correct, after suffering from a session of recession, stagnation, and a series of economic sanctions in late nineties. Economy has grown at an average rate of almost 7.0% per annum during the last five years and despite all political turmoil, high oil prices, energy, cotton and wheat crisis, it is expected that Pakistan will have growth rate of around 5% this fiscal year. Because of strong economic growth of past few years has caught the attention of investors and leading companies of the world. Resultantly, both foreign and local investment is on its peak in these years. Officials of previous government and their remnants in the present government claim that electricity shortage in the country is mainly due to brisk pace of expansion in the economy. According to the 2002 famous PPIB Demand Vs Firm Supply graph, Demand curve crosses Firm Supply curve in mid 2005. Since 2004 it was becoming evident that there would be power crisis in coming years. In short, government was fully aware of the looming power shortage at the time of framing 2002 power policy. But it seems that there was no will to investigate and adopt a reasonable, cost-effective and lasting remedy.

It wouldn't be wrong to say that not a single leader took the initiative to own the energy problem as the solution of this problem required bold steps and that's one quality, in the never ending list of qualities, which our leadership lacks. The Musharraf regime also touched upon this topic but soon backed out of it when they saw the mess it might create. On and off they raised this issue, when it was politically motivated to divert the attention of the masses from some other issue of national importance but no one made an effort to solve it.

The irony of the matter is that the imported Economic Genius of Pakistan, Mr. Shaukat Aziz government was good in makeup but in reality did nothing to solve such problems. The problem with energy crises can't be solved with few drastic measures and requires long term planning, effective implementation and consistent follow up.

On one hand, Pakistan has limited its options by allowing thermal power plants in the country and ignoring long term consequences of these plants on the economy. While on other, affairs of WAPDA and KESC are mismanaged. Electricity losses in Pakistan is around 30-40%, which means that out of total of 100 MW electricity produced, 30-40MW is lost and never accounted for while the remaining 60-70MW is distributed to the final consumers. These final consumers include Federal institutions which have a serious issue of non-payment.

Since early nineties Pakistan is following a strategy for de-regulation, privatization and transformation of state owned utilities i.e. WAPDA and KESC. However, instead of improvement things have deteriorated much. The state owned utilities were and even today as whole are on the verge of collapse and are economically unsustainable. The poor performance is mainly due to the i) poor governance, ii) political and bureaucratic interference iii) Institutional weakness and iv) Lack of professional management.

Electricity-deficient Water and Power Development Authority (Wapda) is facing a cash shortfall of billions of rupees that is around 1.2% of the GDP. Which will eventually be bridged up through a higher electricity tariff, commercial loans and budgetary support in the shape of deferred debt-servicing. The cash shortfall has increased despite support by the federal government in the form of subsidies, deferred debt-servicing and equity injections.

The utility's current electricity shortage of about 3,000MW may touch 4500MW in peak summer this year.

Sources in the finance ministry said the government is currently assisting WAPDA in negotiations with various banks meant for arranging facilities that would be available to it over a period of four to five years on federal government's guarantee.

According to WAPDA officials, among other reasons non-recovery of about Rs50 billion arrears from Fata, Peshawar and some other public-sector consumers is a major factor contributing to WAPDA's cash shortfalls resulting in bank borrowing with an additional impact running into billions of rupees. In addition, WAPDA is facing a loss of another Rs55-60 billion on account of system losses which continued to be in the range of 23-24 per cent despite a lot of efforts and investments to improve the system.

Some of the factors contributing to WAPDA's continued poor performance is attributable to the weak bill collection, including from the public sector; high levels of transmission and distribution losses due to theft and leakage; inadequate tariff adjustments; increased purchases from independent power producers, including payments for large unused generation capacity; and a decline in the share of hydropower generation.

Karachi Electric Supply Corporation (KESC) was incorporated on September 13, 1913 and thus it will complete 95 years of its existence this year. By the end of 2007, KESC owns 1756 MW of generation capacity which had overtime been degraded to 1336 MW. After some recent rehabilitation projects, the company has managed to enhance its generation levels to 1534 MW. The approximate demand for power in the city is at least 2300 MW. To meet the supply-demand gap, KESC purchases power from WAPDA, IPPs' and KANUPP. Whenever any of these outside entities fail to provide power or there is a breakdown in KESC's own installed generation base, they have to resort to load shedding.

There has been no recent increase in the generation capacity in KESC region of supply. The last reasonable sized power plant to go online in Karachi area was HUBCO which falls under WAPDA and it is already more than 10 years old. It is said that KESC does have plans to enhance is capacity in two phases. First is going to be a 220 MW extension at Korangi Thermal Power Station (KTPS) and then in phase II there will be an additional 575 MW capacity installed at Bin Qasim Thermal Power Station (BQTPS).

Most of the generation capacity of KESC is located in east of the city. This adds an unnecessary transmission cost in moving this power to north, west and south of the city. Whereas KESC's distribution network is not only below standard but there is a huge factor of power theft also.

In a typical utility company, T&D (Transmission and Distribution) losses are factored at 10% of the total generation capacity whereas KESC transmission loss is above 38%. This is the sign of a truly inefficient distribution network.

The rise in demand for electricity in Pakistan was "prosperity-driven", according to government sources. Besides average GDP growth rate of 7%, some 750,000 air conditioners had been installed in the last few years, apart from other electrical appliances, driving energy demand up. Some 13,000 villages had been electrified in one year, over 11,000 villages are electrifying under the Village Electrification Program and some 30,000 tube well connections have also been given in last year. Massive and rapid economic growth is the sole reason for this shortfall, according to government sources. In simple words, one fine day people in Pakistan wake up in the morning and find economic turnaround resultantly no one got the chance to think, plan and execute any power project to correspond the economic growth. Now there is a huge mismatch between growth of economy and induction of new megawatts in the system. There was a time in 2002 to 2004 when it was planned to sell excess power to India but now things have entirely reversed.

Ministry has under performed and is now under tremendous pressure from Government, people and investors to eliminate load shedding. Last but not the least, blaming government for this shortage is not entirely correct. Investors are also putting their share in this crisis. Presently Pakistan's power sector is more like a cotton and yarn market. New local players have entered in the market and are exploiting the situation. They first get the tariff determination from NEPRA after few months file a revised petition while threatening to discard the project. Recently a new trend has emerged where revised tariff petitions was being filed before the Authority after the financial closure.

Government has prepared an energy conservation and load management plan. Under which shops in big cities are instructed to close by 9pm. It is said that the main focus of the plan is to help industrial users hence the economy doesn't hurt. Government is also encouraging farmers to operate their tube wells during off peak hours or in the morning but not in the evening. Companies operating neon signs and lighted billboards have been asked to shut them down by 9pm. In addition to this, it has also been requested to the management of wedding halls to avoid excessive lighting in order to save energy. Moreover, Pakistan has officially advanced its clocks by one hour on June 1st. The purpose of this move was to get advantage of day light as maximum as possible.

In present age, without sufficient energy the wheel can't run on roads, industry and agriculture can't sustain, hospitals and operation theatres can't function, schools and laboratories can't work and public and private sector businesses can't operate. The situation demands a collective effort on the part of all stakeholders of the society, including policy and decision makers, scientists and academia, industrialists and entrepreneurs and ordinary citizens. Until the new power generation units come in line, the only way to mitigate the problem of power shortages remains conservation. Both WAPDA and KESC should also work on their internal system to control line losses, theft, and increase recoveries. Further, it will be a sensible move to allow WAPDA to construct its own power plants, develop Thar coal mines, and start constructing small dams without wasting a single day. Likewise, KESC should invest in the generation and distribution system and also invite private sector to invest in their area of operations.