World Bank, Lead Energy Specialist, South Asia Energy, Dr Rikard Liden said on Wednesday that World Bank is working on new funding of $ 1.5 billion for the power sector, in addition to existing commitment of $ 2.3 billion.
He was addressing energy sector experts from different ministries and provinces at the launching of World Bank report titled "In the Dark: How much do power sector distortions cost South Asia," prepared by Fan Zhang, senior economist at the World Bank. The data analysed in the report was up to 2015, after which some improvement has been made in the power sector.
Dr Liden maintained that the Bank supports power generation from hydel and solar which are cheaper sources of energy. He mentioned the report which argues that Pakistan''s power sector suffered from inefficiencies that cost the economy $18 billion or over 6.5 percent of GDP in fiscal year 2015.
The report further stated that costs are far greater than previous estimates based on fiscal costs alone. Reforms could save Pakistan''s economy $8.4 billion in business losses and could increase total household incomes by at least $4.5 billion a year.
He said World Bank conducts a lot of analytical research work which guide it for future investment in any country.
Chairman Prime Minister''s Taskforce on Energy, Nadeem Babar acknowledged that Pakistan has established three most efficient RLNG-fired power plants in Punjab. At the same time, he said that there is a need to focus on improvement in distribution and transmission system which were ignored in the past. He further stated that the government has launched a drive against defaulters and theft and Discos have been given a free hand which was not possible in previous regimes.
He shared his thoughts about power availability, affordability and sustainability, saying that making energy expensive does not resolve the issues. He also talked about the impact of subsidy on power sector but clarified that he was not opposing it. He gave his opinion as an expert not government functionary.
He said reasons behind power sector issues are governance structure, adding that distortions are partly driven by governance. He said that focus had not been on reforms in the past.
"Subsidy should be time bound and targeted and not forever," he said adding that circular debt is a subsidy that should have been paid but never got paid. He said that the whole structure of tariffs and regulatory structure creates distortions.
"We are delivering a service to a customer but we are not charging him against the supply and the gap has to be funded by somebody else and when it does not get funded it becomes circular debt," he continued.
"I am saying that the government should not give subsidy. If it feels that subsidy is required for a particular type of customer or group of customers then so be it, but giving subsidy directly or through a different delivery channel is what should be done as opposed to meddling with the pricing structure of the entire sector in order to accommodate one particular group or sector," he maintained.
Nadeem Babar said that the incumbent government is preparing new renewable energy policy and database system of transmission and generation till 2040 which will be ready within a month.
He said if the sector is run as an economic sector as supposed to social sector, "we will actually be increasing the cost and making it more unaffordable". He further stated that the incumbent government has put the most inefficient Gencos at the end of merit order.
In the Dark: How much do power sector distortions cost South Asia, states that Pakistan has made great strides in expanding electricity access and capacity. As many as 91 million more people are receiving electricity for the first time from 1990 to 2010. However, up to 50 million people still do not have access to grid electricity and frequent load shedding damages businesses and the health and living standards of consumers.
Almost a fifth of electricity generated is lost through poor infrastructure, faulty metering and theft. Load shedding is caused by high cost, losses and subsidies which compromise investments and the ability to procure fuel. A lack of grid electricity also impacts health, as it leads to greater use of kerosene lamps, causing indoor air pollution linked to respiratory infections and tuberculosis risks.
The report argues that reforms that focus solely on liberalizing energy prices would lead to an excessively high cost of electricity because of inefficiencies in the system, negatively impacting on the poor and vulnerable. Reforms must therefore go beyond liberalizing energy prices to address several aspects of the power sector distortions, including prioritizing gas allocation for efficient power generation and adopting tariff mechanisms that encourage performance. For the benefit of consumers, reforms should focus on rationalizing consumer prices for electricity and gas to reflect supply costs; and social assistance to help vulnerable populations cope with increased energy prices. Increased access to reliable power must be made a priority.
"Power sector reform should be a top priority, as few other reforms could yield economic gains of a similar magnitude so quickly, based on findings from this report," says Fan Zhang,
"If well designed, these reforms will directly benefit the poor by increasing access, improving reliability, and reducing cost and pollution," she added.
In her presentation, she said electricity shortages reached 5,298 MW during peak hours in fiscal 2016, equivalent to 24 per cent of peak hours. She said that as many as 50 million people in Pakistan were not connected to the electricity grid in 2016. Per capita electricity consumption, after peaking in 2006, failed to grow for almost a decade. In 2014 it was only about one-fifth the average among middle-countries.
Rashid Aziz, World Bank''s former energy sector expert and Mepco Board''s Chairman Syed Akhlaq Ahmad also commented on the power sector issues and gave suggestions.