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Why the energy crisis persists in Pakistan

Like the previous summers, severity of heat combined with long hours of electricity load shedding has made the life of Pakistanis even more deplorable. Electricity shortfall has been reported by the ministers as 7,000 MW which is even worse than the previous year. Karachi, Peshawar, Faisalabad, and Hyderabad are already witnessing public protests against electricity outage of up to 18 hours a day.

The Pakistan I grew up in, during the 1990s had surplus electricity, from the late 90s to 2004-05. But since then, the country has been facing an acute shortage of electricity. The present crisis started in 2006-07 with a gradual widening in the demand and supply gap of electricity. Since then this gap has grown and has assumed proportions which are considered to be the worst of all such power crises that Pakistan has faced since its inception.

The energy crisis is a complex, long-running, and multifaceted problem. For the economist, it is primarily a circular debt issue. For the political observer, it is an issue of absent political will. For those involved in philanthropic activities, it is a governance problem. For the engineer, it is a matter of resolving technical problems, improving energy conservation, and addressing issues like theft and non-payment of electricity bills. Let’s analyse the factors which have fed into the crises of electricity shortage.

Circular debt is regarded as one of Pakistan’s major problem. The electricity sector has been seriously affected by the inter-corporate debt. Besides creating budgetary problems, this has badly affected the power sector. Such debt is created when the power generation companies under PEPCO and KESC fail to clear their dues to fuel supplier. The problem began when the government pledged to compensate energy companies with subsidies in the face of higher costs rather than allow them to increase prices, but subsidies then went unpaid. As a result, energy companies have borrowed to make their payments, with many now reach­ing a point where they cannot afford to borrow further. The government so far has not worked out a mechanism to curtail the accumulation of debt permanently; nor has it been strict with the defaulters. Instead, the influx of money demands from the government to borrow billions of rupees from commercial banks through various instruments to make partial payments of the debt to reduce it to a manageable limit.

The sector suffers from years of underfunding.  As a result, no power project could be set up in the last ten years or so. In other words, this reflects a weak governance structures at the decision-making level or it may be, an excellent example of rent-seeking behaviour.

As a result of underfunding, existing infra­structure is in need of repair and refurbishment, while plans for new plants and equipment are either put on hold or delayed. Much effort needs to be focused on upgrading and replac­ing aging equipment. Transmission and distribution losses are high, and the average thermal efficiency of power plants needs to be increased. Power theft is rampant, and unpaid bill losses are huge.

The persistent shortage of electricity in the country has adversely affected the national economy. Industrial production has been severely hit; and also triggered social unrest. According to one estimate power shortages have resulted in an annual loss of about 2 percent of GDP. One of the recent studies suggests total industrial output loss in the range of 12 percent to 37 percent due to power outages.

Pakistan has a national energy policy, but it is unresponsive, only partially implemented and implementable. Overall, the sector is poorly managed, exhibiting considerable institutional overlap and poor capacity, a situation that has become more evident as the energy situation has deteriorated. Six ministries and forty-two agencies are involved in Pakistan’s energy policymaking and provision. Pakistan needs a more enabling environment for reform created through areas like regulatory improvement and enhanced security for investors, their personnel, and assets.

A longer-running and serious issue is provincial opposition to federal plans in areas of hydroelectricity development. This routinely sees Sindh and KPK in particular oppose large hydroelectric schemes. Most of the hydro projects are planned on the Indus River. The implementation of these projects requires political will otherwise they will keep on delaying.

It is generally believed that the present crisis is a self-imposed problem ensuing from years of bad management, lack of proper vision for future, and poor policies. It is without exaggeration and beyond doubt that electricity shortfall has become one of the most significant issue for the recent Governments in Pakistan. Although various high level committees over the years have astutely identified the problems and solutions, but there is a repeat failure to translate this into policy action.

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