Pakistan’s Power Crisis: A Bridge Too Far?

06 Jun, 2013    ·   3981

Somya Chhabra assesses the crisis in terms of whether the government has a roadmap ahead

Somya Chhabra
Somya Chhabra
Research Intern

The acute power crisis in Pakistan, which has accelerated in the last five years under the PPP government, is indicative of the institutional failure of the state. In the light of the massive load-shedding, varying from 6-20 hours a day, the public has high expectations that the new government will be able to provide some respite soon. The problem, however, is multi-dimensional and has been a cumulative result of years of economic and political instability. This has led to the current situation wherein the government’s ability to implement even stopgap measures is uncertain.

The new Pakistan Muslim League (N) government has a monumental task in front of it - to kick-start Pakistan’s dormant economy and uplift the country from its power crisis. However, this is easier said than done. With the overall infrastructure of the country in shambles, does the government have any roadmap? How is the problem of low investment accentuating the power crisis?

Imploding Infrastructure and Economy
Pakistan is facing a shortage of over 6000 MW of electricity. There is an absence of a comprehensive energy strategy, as well as a lack of political will to implement unpopular changes. The situation is worsened by the deep-rooted economic mismanagement of the energy sector among others, widespread corruption, nepotism, and stealing of vital resources such as oil and gas. There is a high rate of tax default and an extremely low tax to GDP ratio. All this has culminated in a situation of ‘circular debt’ of $5 billion.

The main producers of electric power in Pakistan include the Water and Power Development Authority (WAPDA), Karachi Electricity Supply Company (KESC), National Electric Power Regulatory Authority (NEPRA), and the Pakistan Atomic Energy Commission (PAEC). Apart from these, a number of Independent Power Producers (IPP’s) contribute about 7000MW to power generation. Electricity generation in Pakistan is a mix of hydel (31%), thermal (66.8%), and nuclear power plants (2.2%). However, this sector is reeling under crumbling infrastructure.

The availability and efficiency of the Generation Companies (GENCOs) is questionable. There has not only been a failure to make additions to the power generation capacity, but also to exploit the full potential of the existing plants. These plants are ill-maintained and the amount of fuel required to provide the same amount of energy has increased. Plummeting infrastructural capacity has had an adverse effect on the operational performance of the plants, leading to excessive load-shedding.

The system of Electricity Transmission and Distribution is outdated and overstressed, especially in the urban areas, and needs to be upgraded and expanded. There exists a high rate of losses in transmission and distribution (T&D) of electricity, managed by the Distribution Companies or DISCOs, due to weak grid infrastructure. Moreover, the poor financial health of these companies and increasing losses has led to greater inefficiency. The situation is further accentuated by the problem of electricity theft and the non-payment of bills by a large proportion of Pakistanis.

Decline in Investment
The power sector in Pakistan is characterised by its semi-public and semi-privatised character and has an enormous potential for investment. However, the PPP-led coalition was so heavily plagued with corruption and inefficiency, especially noticeable in the rental power projects, that despite doubling the electricity prices, there was an increase in losses. Pakistan received a record FDI of $5.7 billion in 2008, but has experienced a steep decline to $708 million in 2012, depicting a fall of 87.1%.

The Rental Power Plants (RPPs), which were introduced in 2009, have been notoriously corrupt and mismanaged and are characterised by poor line management. The circular debt situation has resulted in an unreliable and untenable economic environment for investors. Moreover, Pakistan’s corporate tax rate stands at 35% of the net taxable income of the company, which is a huge disincentive for foreign investors. Finally, the recurrent political instability in Pakistan has had an adverse effect on FDI in particular, as political stability is a vital incentive in order to attract foreign investors.

However, there is a silver lining as major FDI is expected in the power sector due to the shift of power to the PML-N, especially from Saudi Arabia and U.A.E. There have also been proposals for the setting up of Special Economic Zones (SEZs), which could play an important role in strengthening investor confidence in the country’s economy.

It is evident that Pakistan’s problems are deep and complex, and the current energy fiasco is rooted in a lack of political competence rather than just in supply. Perhaps the greatest impediment for Pakistan has been the absence of a credible and consistent energy security policy. It is only through new investment, reduction in T&D losses, and maximum utilisation of available capabilities that Pakistan can achieve its targeted power capacity and overcome the crisis.

The PML-N has announced a “100-day roadmap”, which aims to eliminate the main causes of load-shedding, that is, unjust distribution of fuel and the lack of good governance. The incumbents must now prove their worth by effectively reducing power outages, which is what the public is most concerned with.