Building a resilient energy sector

The power sector in Pakistan has become a hotbed of discussions, with a particular focus on the long-standing issue of Independent Power Producers (IPP) and their capacity payments.

Every day, new headlines emerge, shedding light on the complexities and challenges faced by the sector, from stalled negotiations to proposed reforms aimed at addressing the financial burden of capacity payments.

The growing circular debt, which now threatens the country’s economy, is a critical concern. The combined circular debt of the energy sector has surged to nearly 5.5 trillion PKR, with 2.86 trillion PKR attributed to the gas sector and 2.63 trillion PKR to the power sector.

While Capacity Payments remain one of the most talked-about issues in the power sector, I also highlighted several issues beyond Capacity Payments during our last discussion Power sector challenges beyond capacity payments.

The power sector faces additional challenges, such as payments for Non-Projected Missed Volume, Partial Load Adjustment Charges, and scandals related to rising fuel prices.

Moreover, it is widely known that our weak Transmission and Distribution (T&D) infrastructure suffers from high T&D losses, electricity theft, and poor recovery rates, further exacerbating the sector’s problems.

These are merely symptoms of deeper, underlying issues. Simply renegotiating contracts, cracking down on theft, or placing pressure on DISCO personnel through intelligence services will not solve the root problems.

Today, I want to focus on three key principles that have the potential to not only improve the energy and power sector but also transform the entire country: Transparency, Planning, and Governance. I’ll draw examples from the energy sector, but these concepts are equally applicable to the broader governance framework of Pakistan.

Transparency is crucial for the improvement of any sector, especially the power sector. This means ensuring openness in all transactions, whether it’s IPP contracts, government policy or tariff decisions, or payment transactions involved in power sector.

For example, all data on Pakistan’s power generation and consumption should be made accessible to taxpayers (general public) and updated in real-time on websites.

There is no justification for keeping this information hidden—many developed countries provide live data on power dispatch, pricing, and consumption, allowing third-party entities such as academia, engineering associations, and research institutions to analyze and identify trends for building key insight into the sector, offer recommendations, and publish research for sector improvements. Transparency fosters integrity, upholding strong moral principles, and creates a culture of accountability across the board.

Planning is absolutely essential, as Abraham Lincoln wisely said: ‘If I had six hours to chop down a tree, I would spend the first four sharpening the axe.’ Looking at the chaos in Pakistan’s energy sector, it seems we’ve overlooked the importance of proper planning.

Generation capacity has expanded haphazardly, leading to continuous curtailments in the wind power corridor due to transmission congestion. Power plants have been built using a variety of imported fuels—HFO, RLNG, imported coal—without a cohesive strategy.

Moreover, there appears to be little coordination between two critical sectors: the Petroleum/Oil/Gas sector and the Power sector.

Most power plants rely on fuel inputs from the petroleum side, yet there’s no integrated planning between the two. This disconnect becomes even more problematic as the world moves towards “electrifying everything” agenda for decarbonization and seeing it as key climate solution, with electric vehicles (EVs) and renewable energy sources becoming increasingly prevalent in distributed generation.

The need for integrated planning has never been more urgent. Planning involves setting clear strategies to achieve specific goals, such as Pakistan’s Nationally Determined Contributions (NDCs) under the Paris Agreement, and then crafting the right tactics and pathways to implement them. Without this, we will continue to face inefficiencies and missed opportunities for progress.

Governance is the foundation of any organization’s success, so much so that it is now a key component in evaluating processes through frameworks like ESG (Environment, Social, and Governance).

At its core, governance is about the exercise of power and authority within an organization or system. It defines the rules, processes, and institutions that guide decision-making and implementation. Effective governance is crucial for several reasons.

First, it ensures accountability—those in power are held responsible for their actions and decisions, which helps to curb corruption and prevent the abuse of power.

Second, transparent governance fosters trust by promoting open communication and providing access to information, which builds public confidence in institutions.

In the energy and power sector, good governance is essential. It requires leadership with a balanced understanding of technical, financial, and commercial aspects to take ownership and drive positive change. Governance also includes the regulation, control, and compliance mechanisms that keep the sector running smoothly. Ultimately, good governance is the bedrock upon which successful organizations and societies are built. Without it, even the best strategies and plans will fail to achieve their potential.

In conclusion, to address the challenges in the energy and power sector, we need a unified approach driven by three key elements: integrated planning, good governance, and transparency.

First, there should be one central ministry, one regulator, and a unified central planner dedicated to coordinating efforts across the entire energy landscape. This centralized approach would enable holistic and integrated planning, ensuring that the power sector, petroleum sector, and renewable energy sources work in harmony, avoiding the fragmented decision-making that has led to inefficiencies in the past.

By aligning under one centralized body with a transparent and accountable governance framework, we can resolve the underlying issues and set the energy sector, and Pakistan as a whole, on a path toward long-term sustainability and efficiency.

This approach is not just about solving immediate problems but creating a resilient and well-functioning system for the future.

Copyright Business Recorder, 2024