ENERGY CRUNCH FALLOUTS

FOZIA AROOJ
(feedback@pgeconomist.com)

June 11 - 17, 20
12

Pakistan is in the clutches of the hydra-headed energy crisis. The chronic electricity shortage coupled with depletion of gas reserves is taking heavy toll on the industry, exports, and investment of the country. With the current shortfall reaching 8000MW, power outages have dramatically increased. This power shortage is also affecting the gross domestic product (GDP) of our country as growth rate is pegged between three to less than five per cent indicating a destructive economic breakdown in near future if this problem is not coped up.

Another major failure is the issue regarding the scarcity of gas. Pakistan's indigenous reserves of gas are exhausting and no new major findings are on the anvil. As existing reserves continue to decline, the growing shortages of this vital fuel are creating bitter power struggle and dispute among all the stakeholders whose businesses depend on gas.

Mainly fertilizer manufacturers are at loggerheads with textile magnates who use natural gas as a fuel for their captive power plants to run their industries and meet their export orders as well as CNG sector.

Owing to the worst energy crisis in the country, the industrial production is suffering, exports are nose-diving, jobs are being lost, and the national economy is ruined. The exacerbating energy shortage is hitting industrial output badly as it is causing unprecedented production loss of billions of rupees everyday. Industrialists are shifting their industrial units to Bangladesh, Malaysia, Saudi Arabia, and other countries. Daily 16-hour-long continuous load shedding is badly affecting the working of small and medium sector.

The textile sector has strong implications on socioeconomic conditions of the country given its role in employment generation. The sector has to face deprivation with intensified power outages and gas shortages. The textile industry lost $4 billion exports in current fiscal year. There has been a drastic slump in textile exports and the export target of $16 billion has not been achieved for fiscal 2011-12.

Unprecedented energy shortage is prime reason behind substantial drop in exports. The situation would be alarming further in fiscal 2012-13, as textile industry particularly in Punjab is denied electricity and gas supplies.

Besides production loss to the industry, there is a huge loss to services sector, which is also driven by the industrial activity. Some estimates put the loss to the tune of one billion rupees per day as banking, insurance, import-export handling, etc. also remained inactive.

Negative industrial growth has resulted in reduced output, missed export, and revenue collection targets and monumental unemployment. Overall, in value-added export sector alone, Pakistan is losing more than $10 billion every year due to power shortage. Due to load shedding of electricity and gas and resultant significant job losses are greater than the jobs created and all the sectors have negative growth. It is causing an estimated loss of Rs230 billion annually, besides depriving about 0.4 million people of jobs. Energy and power crisis have crippled the industry while interest rates and inflation are also in double-digit, which is seen as the second most serious problem that has hit industry.

High cost of gas and electricity is also making Pakistan textiles price uncompetitive in the international market. The cost of production has increased as industrialists have to spend more money on alternative sources of energy.

The installed capacity of power generation in the country is 19,000 MW, which is not being tapped due to the existence of a complicated circular debt in the energy sector. Most of the IPPs have to obtain oil on credit from Pakistan State Oil (PSO), as they do not make enough cash because of power theft, transmission losses due to old and obsolete distribution network, and non-payment of electricity bills by large industrial-business consumers, and even government departments.

There is a huge fiscal failure of the government. The government is unable to mobilise revenues for its growing expenditures. It is unable to pay for expensive and imported furnace oil to run the power plants. As a result, much of our power generation capacity sits idle throughout the year.

There exists a herd of privileged consumers - those for whom electricity is made abundantly available and often for free. They are scattered all over the country and they include government offices, ministerial residences and military installations, offices and housing. The government's outstanding electricity bills are around Rs350 billion, which is the exact size of the outstanding payables in the circular debt.

Not only does the consumption of this privileged class of consumers result in shortages for everybody else, but the cost of providing them free electricity has to be borne by those who regularly pay their bills.

It is pertinent to relate that the cheapest source of electricity is hydropower that costs only Rs2 per unit whereas the electricity produced by oil driven independent power producers (IPPs) and rental power cost Rs14 per unit. It is unfortunate that in our national grid, 65 per cent of electricity comes through IPPs, while the share of power generation through hydro petroleum stands at 35 per cent only.

Prolonged and unscheduled electricity load shedding has not only disrupted the life of the people in general but it is proliferating psychic and emotional disorders in the population.

Small businesses and self employed workers who are associated with tailoring, service stations, electronics shops, motor workshops, welder, drycleaners, wheel balancing and net cafes are facing financial difficulties in the absence of electricity for 10 to 12 hours in the city and 12 to 15 hours in rural areas. They cannot even run their kitchens and pay school fee of children owing to stoppage of work for 4 to 6 hours in daytime. Unemployment, price-hikes, industrial closures always give birth to lawlessness and anarchy

This energy crisis is ultimately becoming the major cause of increasing unemployment in our country. There is no electricity so industries are being forced to shut down leaving the labors and employees helpless and without any jobs. It is said in the last four years, thousands of employee who have lost their job due to these energy crisis have returned to their homes from where they have come in search of job.

All stakeholders need to urge the government to take serious note of power crisis and resolve it on war footing for the larger interest of the economy. Instead of raising tall claims, the government has to initiate the projects of Diamer-Bhasha Dam, Mangla Dam, electricity imports from Iran and India and Thar coal to rev up energy.

We have enough potential of producing electricity from hydel sources. Massive additions to the national grid can happen by exploiting potential of dams like Bhasha (4,500MW), Munda (740MW), Kurram Tangi (83MW), Akhori Dam (600MW), Bunji (7,100MW), Dasu (4,320MW), and Golen Gol (106MW).