Power sector decline

Among the critical issues that are being carried forward, unresolved, to 2021, by the government of the day, is the power sector. Prime Minister (PM) Imran Khan has described the sector as the one that gives him most headaches and keeps him sleepless.

The PM’s worry is well founded. The availability and affordability of electricity in the country is a make or break for our industry, trade, exports, agriculture and competitiveness in the domestic and international markets. It also impacts on performance indicators that influence country’s economy, employment, inflation, poverty alleviation and social aspects at all tiers of society.

All mature and emerging markets that have been successful in elevating their economies have been able to provide affordable electricity to their people. Over the years, these have invested in human resource development and technology to deliver and manage cost- effective electricity and by now have largely migrated to renewable energy. None of these has happened in Pakistan.

The cracks in the power sector began to surface in 2009 (during the tenure of PPP) when the nation started to move from being power surplus to power deficit, thereby, providing the government of the day the reason to usher an influx of all types of Independent Power Producers (IPPs) - costly diesel and rental power etc., largely driven by vested interests with little concern for efficient fuel nor plant efficiency. In the process, the regulators were compromised and utilities in the public sector politicised; resulting in escalating tariffs, pile-up of receivables in the buildup of circular debt. PML-N, in its five-year tenure, did little to provide affordable power and discipline the regulators, the public utility companies and the IPPs. The tariffs continued to rise and so did the circular debt.

If one wants to understand the core issue of the power sector one must understand the escalating circular debt that is on top and the core reason of its build- up. Circular debt in the energy chain stood at Rs105 billion at the end of Pervez Musharraf’s government in 2008, parked at Power holding pvt Ltd (PHPL). At the end of PPP government in 2013, it stood at around 500 billion. According to official data, total circular debt as on July 31, 2018 stood at Rs1.18 trillion, including Rs596 billion of debt and Rs582 billion that was parked in PHPL.

The trend of circular debt escalation over the decade corresponds to escalating trend of tariffs, line losses, receivables, power theft, unchecked conduct of the IPPs by the regulators and mis-governance in the management of the entire supply chain of the energy sector, which include oil, gas and power. These are the core issues of the power sector - which so far remain unaddressed.

In 2018, the PTI government inherited a circular debt of Rs 1.18 trillion. As of September 2020, the total circular debt soared to 2.1 trillion; this means that the core issues in power sector remained unrecognized and unaddressed in the last two years of the incumbent government. The worry of the Prime Minister on the failing power sector is therefore genuine and his determination to set it right justified. However, his ministry of energy and that of power and the professional special assistants brought on board to fix the issues are not focused on the core issues - which are well identified and basic, but require an extremely high level of competence and hands-on approach to address the mess of over a decade in the energy sector. Unfortunately, however, this approach is missing. So far it appears academic with lots of good ideas.

One reads about the government’s plan of power sector deregulation, multi-supplier and buyer regime and electricity trading and similar ambitious initiatives. But, to be realistic and honest, one must recognize that all of this is workable in a fairly stable power sector. Ours, in the present shape, cannot be rated as a stable power sector. Our energy managers and special assistants need to first fix the basics and provide the nation a stable energy sector.

(The writer former President, Overseas Investors Chambers of Commerce and industry)

Copyright Business Recorder, 2021