Energy prospects for Pakistan

Access to reliable, affordable and uninterrupted electric power and other forms of energy is the key to economic growth and welfare of any society. Studies by International Energy Agency and other international organisations have shown strong correlations between access to energy, particularly electricity, and sustained economic growth, human welfare, governance and security, underscoring the need for ensuring energy security for developed as well developing economies and their citizens.
Pakistan is currently facing severe energy shortage, both of electric power and natural gas. The shortage of natural gas has been caused by depleting gas reserves and rapidly increasing demand. Ironically the electricity shortage has not been caused by a lack of generation capacity which at the moment exceeds the peak demand by about 5,000 megawatts.
The power companies are unable to utilise their existing generation capacity due to a number of problems most of which have been caused by poor management and lack of good governance. Excessively high power prices have also driven electricity out of reach of a large number of people and made it unsustainable for industrial consumers, resulting in closure or relocation of many industrial units. Frequent and sustained outages are also causing disruption in economic activity as well as daily lives of people. Thus electric power supply suffers from the multiple problems of availability, affordability and reliability.
The issues faced by Pakistan's Power sector culminating in the current power crisis can be divided into four broad categories: policy issues, governance and management issues; efficiency issues; and cost issues.
Policy issues: Until 1970s, Pakistan's electric energy mix comprised 70 percent hydel and 30 percent thermal along with a small fraction of nuclear power. Hydel power provides the cheapest source of energy. Pakistan has been endowed with more than 45,000 megawatts of potential hydropower resources by nature. But hydropower projects are more capital intensive and take a longer period to build. So Pakistan gradually started shifting to constructing thermal power plants. Donor financing was also easier to get for thermal projects. This policy shift raised the cost of power generation and exposed the power sector to vagaries of ever increasing international oil prices. Today Pakistan produces 67 percent of electricity from thermal sources, 30 percent from hydroelectric and 3 percent from nuclear.
The current energy crisis is a serious challenge which would require very serious and sustained effort on the part of the Government to save the economy and provide relief to the suffering population. The problem has assumed such proportions that there is no quick fix available to resolve it fully in a short time. It would require short-term, medium-term and long-term measures as well as some hard policy decisions.
These are briefly discussed below:
Short-term measures
1. Eliminate circular debt: Circular debt is the most serious problem needing to be addressed on priority. If not resolved quickly and permanently, it would not only continue to bleed the power sector but would also destroy many other energy organisations in the chain - most notably Pakistan State Oil (PSO) and oil refineries. One possible solution that comes to mind is to create a Circular Debt Retirement Fund under a specially created organisation. The fund may be financed by a consortium of banks and financial institutions under sovereign guarantee of the government. The Debt Retirement Organisation (DRO) should take over the entire debt of electricity distribution companies (Discos) and pay off their creditors out of the fund. From then on the Discos should either be allowed to recover from the consumers full cost of supply plus an additional amount to pay to DRO each month so as to retire the whole debt within six months which would be a hard political decision for the government. Alternatively, the government should pay the difference between cost and revenue to the Discos by way of subsidy, which would depend on fiscal space available to the government. The government will have to make special effort to create such a fiscal space.
2. Prompt implementation of Nepra tariffs: What had initiated circular debt was the government decision not to pass on the cost increases based on fuel price to the consumers, thus creating a gap between Discos' cost and revenues. Consequently, a stage came when Discos were unable to sustain the losses and defaulted on their payments to power suppliers. It must be ensured for future that Discos recover their full cost of supply either from the consumer or through government subsidy.
3. Recovery from public sector: The ministry of finance should ensure adequate budget to federal government organisations to pay their electricity bills on time, a deduction should be made at source and passed on to Discos. Deductions should also be made from grants to defaulting entities.
4. Checking theft: Discos should adopt both administrative and technical measures on priority to prevent large scale electricity theft. The government should assist the Discos in this task by ensuring prompt and heavy punishment to power thieves.
5. Power conservation: Steps should be taken to educate the public in power conservation by launching media campaigns against electricity wastage and for promoting the use of energy saving gadgets. Demand can also be managed by introducing time-of-day (ToD) tariffs.
Medium and long-term measures
1. Efficiency improvement: Funds should be arranged by the government for power generation companies (Gencos) in the public sector to repair and refurbish their old plants to bring them back into service and improve their efficiency to make them viable.
2. Promoting alternate energy: Effective measures should be taken to promote use of wind and solar energy at the household level and in off-grid remote areas. This would require incentives to develop and manufacture cheap solar panels and wind turbines.
3. Correcting energy-mix imbalance: A well-planned policy shift should be made to correct the energy-mix by shifting our focus from oil-based thermal power to hydel power. Serious efforts should also be made for utilisation of coal deposits. Greater efforts should also be made for exploration and development of new gas reserves. The gas pipeline from Iran to Pakistan should be expedited.
4. Improving governance: It is imperative to improve governance in order to formulate power policies based on merit rather than vested interests, check power theft, ensure full revenue recovery, check corruption and reduce overstaffing.
It is high time that we realise that lack of planning and co-ordination, mismanagement and high-rate wastages have brought the country's economic health to the brink of disaster and now we have no time to lose. If short-term and long-term measures suggested above to address the need for electric power is not taken now, the shortfall could go up to 13,000 megawatts by year 2020.
(The writer is former secretary, Ministry of Water and Power, Government of Pakistan and member, National Academic Council of Institute of Policy Studies, Islamabad)