Urgent reforms imperative: Survey sees circular debt hitting Rs4trn mark by 2025

ISLAMABAD: The government has indicated that the country’s circular debt would reach Rs 4 trillion by 2025 if urgent reforms in power sector are not initiated.

According to Economic Survey 2021-22 released Thursday, the problem of circular debt in the energy sector is a long standing issue. Successive governments have strived hard to bring circular debt down but the issue largely remained uncontrolled. In FY2013, circular debt was around Rs 450 billion which reached to Rs 1.148 trillion in 2018.

The data of Central Power Purchasing Authority-Guaranteed (CPPA-G), circular debt stood at Rs 2.467 trillion by March 2022 which implies that circular debt is equivalent to 3.8 percent of Pakistan’s GDP and represents 5.6 percent of Pakistan’s government debt.

The government has observed that growing at the current pace and if it is allowed to grow unaddressed, it is estimated to reach Rs 4 trillion by 2025, demanding the urgency of reforms in the power sector.

The Economic Survey documents state that Pakistan is very rich in hydropower and has the enormous potential to generate electricity from water. The estimated total hydropower potential of Pakistan is around 60,000 MW.

The country is not utilizing full potential and using nearly 16 percent of the total hydropower potential. The high investment cost for the installation of hydro-plants, development of electricity transmission network and resettlement of the affected population are few reasons for hydropower not being exploited to its full capacity. Currently, the Hydro installed capacity is 10,251 MW which is around 25 percent of the total installed capacity.

The total electricity generation capacity during July-April 2022 has increased by 11.5 percent and it reached 41,557 MW from 37261 MW during the same period last fiscal year.

Pakistan has wind corridors as well and there is huge potential to generate electricity from wind. It is estimated that Pakistan can generate 50,000 MW from wind. The contribution of Wind in the total installed capacity is 4.8 percent and currently stood at 1,985 MW.

The potential for solar power in Pakistan is also high. The sunlight is available abundantly almost throughout the country. Currently, the capacity share of these renewable resources is small, but it is expected to increase sharply, as reflected in the Alternative and Renewable Energy Policy 2019. The installed capacity of solar is 600 MW which is around 1.4 percent of the total installed capacity.

Pakistan is also producing energy from the nuclear technology whose contribution is increasing gradually. The gross capacity of the nuclear power plants was 2,530 MW that supplied about 7,076 million units of electricity to the national grid during July-March FY2021.

The gross capacity of nuclear power plants has increased by 39 percent and it stood at 3,530 MW that supplied 12,885 million units of electricity to the national grid during July-March FY2022.

The percentage share of Hydel in total installed fuel-wise capacity has marginally reduced to 24.7 percent during July-April FY2022 as compared to its share in FY2021. The contribution of RLNG in the installed capacity has increased to 23.8 percent in July-April 2022 from 19.66 percent.

The percentage share of coal remained the same, although there is an increase in the installed MW from 4,770 MW during July April 2021 to 5,332 during July-April 2022.

The percentage contribution of gas has declined from 12.15 percent during July April 2021 to 8.5 percent in July-April 2022. There is an increase in the percentage share of renewable energy which is a good sign for the economy as well as for the environment.

The percentage contribution of Nuclear has increased to 8.8 percent during July-April FY2022 from 6.68 percent during July-April FY2021. The share of wind has increased from 3.31 percent to 4.8 percent while the percentage share of solar has increased from 1.07 percent in July-April FY2021 to 1.4 percent during July-April FY2022.

There is a slight shift in the percentage share of different sources in electricity generation. Thermal has still the largest share in electricity generation in the country, although its percentage contribution has declined from 62.5 percent during Jul-April FY2021 to 60.9 percent during Jul-April FY2022.

Similarly, the percentage contribution of Hydel in electricity generation has also reduced from 27.8 percent in Jul-April FY2021 to 23.7 percent during Jul-April FY2022. The percentage share of Nuclear has increased from 7.2 percent during Jul-April FY2021 to 12.35 percent during Jul-April FY2022.

The contribution of renewable in the electricity generation has increased from 2.4 percent during Jul-April FY2021 to 3.02 percent in the first ten months of FY2022.

The first ten months of the current fiscal year has not seen any major shift in the consumption pattern of electricity. The share of household in electricity consumption has slightly declined from 49.1 percent in FY2021 to 47.0 percent in FY2022.

Electricity consumption in the commercial sector has also witnessed a decline and stood at 7 percent in FY2022, down from 7.4 percent in FY2021.

However, the share of Industry in electricity consumption has increased to 28 percent during July-April FY2022 from 26.3 percent during July-April FY2021. The use of electricity in agriculture sector has slightly increased to 9 percent from 8.9 percent.

The share of electricity consumption in other sectors, including public lighting, general services and other government traction has decreased to 8 percent from 8.3 percent.

Historically, Pakistan’s economic growth is constrained by bottlenecks in the energy sector. Pakistan’s energy requirements are increasing and demand for energy in the coming decades will rise substantially. Energy demand on this scale will put increasing pressure on energy resources and distribution networks.

This is unsustainable without a fundamental transformation of the energy system. Dependency on the dominant fossil energy resources, especially oil is risky. Energy security is essential because the kind of disruption we have seen is a potential threat to our economic well-being. Exploration of the more indigenous and renewable resources is key to energy security.

The government says, it has been endeavoring to bring in transformational changes in power system by exploring alternate sources of energy in the country. Government is also focusing on the renewable sources of energy to make access to energy affordable.

The exploration of alternate and renewable sources of energy will also help to ensure energy security and sustainability. In this connection, Pakistan is actively following the policy of a shift from conventional sources of energy to the utilization of indigenous renewable and environment friendly clean energy generation resources. There is a significant transformation and the contribution of alternate and renewable sources of energy is increasing.

Copyright Business Recorder, 2022