September Issue 2015

By | Economy | Published 9 years ago

Persistent energy shortfalls and the resultant blackouts continue to affect the lives and jobs of millions of citizens, with even international financial institutions such as the World Bank and International Monetary Fund (IMF)cautioning the government against the effects power outages have on economic growth and exports.

A couple of years ago, the Asian Development Bank (ADB) finally took a hard line and said that the economic managers of the country would have to immediately reform the energy sector. According to the ADB, the economy loses an average of two per cent in growth due to the energy crisis. On top of this, Pakistan is mired in an unsustainable circular debt as consumers buy electricity but fail to pay their bills. Even though the IMF has forced the government to reduce subsidies from Rs. 330 billion per annum to Rs. 120 billion, the circular debt continues to mount as consumers default on payments.

In Karachi, the economic hub of the country, K-Electric has claimed to reduce transmission and distribution losses by nearly 10 percentage points, but in the streets and alleys of Karachi the number appears to be higher.

Taking into account the various ailments that cause the power sector to bleed money — the circular debt, unsustainable subsidies etc — the total loss to the economy has been around Rs. 500 billion per annum.

According to an energy expert, there are many other reasons for the power woes. They include a lagging generation capacity amounting to a 5000MW shortfall; a crumbling transmission infrastructure that is unable to carry in excess of 17000MW; liquidity constraints in the energy chain due to a cost differential between the cost of generation and the amount recovered from consumers; a poor bill recovery ratio and inefficient generation companies.

He suggests several ways to counter these problems. Among them, liquidity should be improved by eliminating subsidies, as demanded by the IMF. Another recommendation is to privatise state-owned distribution companies, something the PML-N government has in the pipeline. Fuel may also have to be allocated on a more efficient basis, with plants that pay their dues in a timely manner receiving priority. Above all, transmission has to be improved by switching to aerial-bundled wires, with the wires covered by plastic, to curb kunda connections.

Zeeshan Afzal, head of research at Taurus Securities, said that improved law and order, implementing recovery-based electricity supply (more load shedding in high-theft areas), providing legal assistance to the distribution companies to recover arrears, forcing the government and courts to pay their power dues and an improved transmission system would reduce the circular debt and result in higher electricity generation, which, in turn, will free up investment for further power generation.

This article was originally published in Newsline’s September 2015 issue.