Research Analyst
May 2 - 15, 2011

Electricity in Pakistan is generated, transmitted, distributed and supplied by two vertically integrated public sector utilities: Water and Power Development Authority (WAPDA) for all of Pakistan (except Karachi), and the Karachi Electric Supply Corporation (KESC) for the city of Karachi and its surrounding areas.

For years, the matter of balancing Pakistan's supply against the demand for electricity has remained a largely unresolved matter. Pakistan faces a significant challenge in revamping its network responsible for the supply of electricity.

Pakistan's electricity generation is heavily tilted towards thermal power generation that accounts for roughly two-third of the country's total power generation, which is only because of inefficient policymaking. Needless to say that the high dependence on thermal generation leads to the high import of furnace oil given that Pakistan does not produce sufficient crude oil to meet its requirements.

Out of the 67 per cent electricity produced from thermal sources, nearly half of it comes from natural gas, which is a problem in its own right.

With its fast depleting gas reserves, Pakistan cannot afford to rely heavily on gas being burnt as fuel for power as it leads to massive losses for industrial sector that has to face the music of gas shortfall in the peak season. The never ending politicking on the issue of water storage in the form of construction of dams has also cost the country a lot in monetary terms over the years as electricity generation from hydel sources has been stagnant in the past ten years.

With the threat of global warming and melting of glaciers, there exists an opportunity in the problem to build large water reservoirs to avoid catastrophic situation five years from now. This will present us with the chance of generating hydel electricity and reduce our reliance on largely imported thermal electricity generation.

Another problem is that of inefficiency which ranges from the inefficient plants to the inefficient billing collection system, all of which adds to the worrying situation in the power sector. Firstly, a vast majority of power plants operating in the country is run on less than optimal level and the average capacity utilization is a shocking 34 per cent.

The reason for such inefficient plants is that not enough investment has been done in the power plants, which were originally imported from Western countries. Their inefficiency does not only lead to the failure in meeting the electricity requirement but also leads to heavy consumption of the imported furnace oil and the precious natural gas hence resulting in higher tariffs.

More recently, the furnace oil stocks of PSO are reported to have fallen to 30,000 tons and a ship carrying the fuel is due in upcoming month. The shortfall was around 6,000 mw till this month, which was reduced to 4,500 mw after increased water releases from dams.

The PSO informed Pakistan Electric Power Company (PEPCO) that it was cutting oil supplies (10,000 tons from 19,000 tons) to the power sector. The daily furnace oil requirement of the sector is 36,000 tons. It is estimated that 50 per cent reduction in oil supply means that power generation will suffer a further loss of 2,500 mw. If the current heat spell continues, the electricity shortfall will rise correspondingly and most parts of the country will be without electricity for around 18 hours a day. The emerging situation is disastrous, because it will turn the entire generation plan topsy turvy. The weather is turning hot and demand has already reached 16,000 mw.

The total installed power generation capacity in Pakistan witnessed an increase of 2.1 per cent during 2009?10 against the one per cent growth in corresponding period last year. With the share of 31.6 per cent in total installed capacity during 2009?10, private sector witnessed the prominent growth of 7.1 per cent in its installed capacity during the period.

There is the devil of transmission and distribution losses, which is the major cause behind the massive load shedding leading to industrial losses and social unrest. The fact that the infrastructure setup of the power distributors is not up to the mark, hurts the IPP's as 20 per cent of what they produce is lost on its way to the consumers.

Although, the official numbers show a gradual decline in transmission and distribution losses, but those close to the industry reveal that the actual picture is much worse and the losses range somewhere between 30 to 35 per cent. Then there is a lot of electricity being stolen from the system that cannot be billed, hence, resulting in huge operating loses for the power distributors.

The dilemma is that in most cases, the thieves are known but cannot be put on trial because of the lack of political will. There is no other solution to this problem than to take strict actions against the culprits, which is only possible if the government intends to act against them.

Finally, comes the inefficient billing collection system as a large number of customers specially those having strong links in the setup delay their payments to the distribution companies, which in turn reduces the IPPs' ability to procure furnace oil and thus a power shortfall. This is where the vicious cycle of circular debt starts and adversely affects the economy.

The government, therefore, needs to be proactive in this regard and must find ways to provide continuous power supply. There is a dire need that the government accepts its failure to fulfill the promise of a load shedding free country, and instead of coming up with excuse should formulate a sound long-term strategy to ensure cheap electricity to the end users.