Power sector: WB proposals

There is no shortage of proposals to revamp the power sector in Pakistan. In a report titled "Country Partnership Strategy Progress Report for the Islamic Republic of Pakistan for FY 2010-14," the World Bank has argued that the country could improve efficiency and quality of services in the power sector with improved incentives for demand-side efficiency, legal and administrative support to curb theft and non-payment, and giving more operational and financial autonomy to power companies while at the same time holding them accountable for performance.
The sector could also be uplifted by reducing and better targeting the subsidies to those who most need them, reducing costs and adjusting electricity tariffs on a frequent basis and eliminating circular debt which had plagued the system.
According to the report, power and gas sector reforms were a long-term effort and required continuous monitoring. Appropriate incentives to expand indigenous gas production and allowing gas producers to negotiate new gas contracts with bulk customers under a proper tax regime were essential. Relentless focus on implementation and sector management was necessary, and the structure in the government and the power sector companies and accountability needed to be clarified and enforced. The revised strategy should include projects that meet the criteria of low cost, bring generation costs on a sustainable downward path, accommodate the critical need of base load and summer time peaking and reduce dependence on market-priced imported fuels. The report maintains that by prioritising hydel development, bringing more gas to the power sector, utilising off-grid renewable energy and regional co-operation in the power generation (such as CASA 1000), Pakistan could significantly reverse the present situation. The World Bank, nonetheless, has recognised that government of Pakistan had taken some difficult steps including increasing tariffs by 75 percent over the past two years but there was an urgent need to deeply transform the power and gas sectors.
There could possibly be no argument against the World Bank's proposals to improve the power sector to meet the growing demand of the country as only uninterrupted supply of energy could ensure the continuity of production processes in a modern economy and satisfy the needs of the households for a comfortable living. Of course, Pakistan has not only to reduce the circular debt on an urgent basis but has also to redouble its efforts for setting up viable new power projects to augment the present supplies, increasing exploration of natural gas, crude oil and coal, tapping regional markets and setting up infrastructure for energy imports and incentivising development of renewable energy sources. While augmenting energy supply was crucial, managing demand across economic agents in an inclusive manner had also become necessary. It was good to note that the World Bank was fully aware of the issues in the energy sector and had covered them in its report in a comprehensive manner in order to suggest a proper roadmap for the policymakers of the country.
However, while most of the proposals of the World Bank make ample sense and need to be pursued vigorously, their actual implementation was far from being certain due to a number of difficulties and constraints at every step on the way to reforms. For instance, the circular debt which has emerged as the biggest challenge was due to non-payment of electricity subsidies by the government, default on payments by energy consumers and build-up of payables and receivables within the energy sector. In order to resolve the issue conclusively, the government has to find sufficient resources from its budget, force others to settle the accounts with the power producers and raise the energy tariffs to levels which are equivalent to or more than the cost of production/supply.
How all of this could be done when the government itself is a defaulter, feasible hydel projects are difficult to undertake due to political considerations and a sharp increase in tariffs could lead to a political upheaval in the country is a million dollar question. It is even difficult to remove kundas and check other forms of electricity/gas theft when the government machinery is weak, corruption is rampant among the staff, particularly at lower levels and there is a fear of a backlash. In short, it seems very hard to adopt the harsh but unavoidable measures needed to improve the performance of the energy sector in the current situation. For such an effort to succeed, the country needs a strong government and the co-operation of most of the political parties and the relevant stakeholders on a proper energy sector strategy which has the potential to deliver the desired results. If the coming elections could foster such an environment, the country could at least move in the right direction though the goal of energy self-sufficiency would still be years away.