The ongoing energy crisis is arguably the biggest challenge Pakistan faces as a nation. Since its emergence in 2006, the problem continues to grow both in dimension and size. It initially appeared in the form of electricity shortages but the scarcity of gas has also become a serious problem since 2009. Issues related to electricity generation capacity are being compounded by an unprecedented escalation of energy prices. The government’s efforts throughout this period have been all but an eyewash. Not only that, ironically, some key officials in the policymaking and decision-making circles, and other concerned influential lobbies, have made the most of the crisis to multiply their fortunes through blatant corruption and extortion. Subsequently, the chronic apathy and malpractices of the ruling elite have only made a bad situation worse.
The shortfall of electricity has grown from around 2,000 megawatts in 2006 to nearly 8,000 megawatts in 2013. Over this period, the duration of load-shedding, even in major cities, has jumped from three hours to as much as 20 hours per day.
The tariffs for electricity and gas, similarly, have jumped by over 100 per cent. Circular debt is another quagmire that cropped up in 2006-2007 and has now become a gigantic challenge for the power sector and the national economy. This article presents an autopsy of the major governance-related blunders that created and fostered the energy crisis. It also reflects upon the dimensions and implications, as well as, sustainable solutions for the problem.
Was the energy crisis avoidable?
The present energy crisis has not appeared overnight. The signs were obvious for a good number of years but the authorities failed to react in time. How well the relevant authorities were prepared to anticipate any challenges can be observed from the fact that on March 18, 2004, in one of his policy briefings at the Pakistan Development Forum, Aftab Sherpao, the then minister for water and power, predicted an electricity deficit of less than 1,500 megawatts by 2007. By December 2007, the shortfall grew to as much as 4,500 megawatts, more than three times the forecasted figure. Senior power sector officials claim that as early as 2002, the government was categorically told that a severe energy crisis was set to hit the country within a few years unless effective measures were taken to enhance the electricity generation capacity.
A former senior official of the Water and Power Development Authority (Wapda) claims that his department requested, on at least 13 occasions between 2003 and 2006, the then prime minister and president, to set up new power plants to match the rapidly growing demand. The timely warning, failed to receive any appreciation. Such warnings were, in fact, snubbed. When in 2002, the acting Wapda chairman wrote to the government to give serious consideration to the approaching crisis, he was told: “Stop raising false alarms.”
Have governments done enough to resolve the crisis?
The energy history of the country reveals that, apart from a couple of exceptions, no regime has done enough for the energy sector. The short-sightedness of successive regimes over the last three decades has had a detrimental impact. The governments have failed to look beyond their tenure in office, and have adopted a project-oriented approach rather than a goal-oriented one.
A series of blunders made by successive regimes over the last three decades clearly manifests the problem. For example, hydropower is the main strength of Pakistan’s power sector but apart from the 1,450 megawatt Ghazi Barotha, no new significant hydropower project has been accomplished in this period. The other main indigenous energy resource, coal, has also been continuously neglected. It is noteworthy that China and India respectively produce nearly 80 per cent and 70 per cent of their electricity from coal, whereas in Pakistan, the share of coal is even less than one per cent.
The haphazardly orchestrated Independent Power Producers (IPPs) of 1990s – given their controversial bidding process, inflated tariff structure and excess generation capacity — are another example of reckless policymaking and decision making. Dumping of the State Engineering Corporation’s indigenisation of power plants initiative of 1993-1994, to prepare grounds for the lucrative IPPs, is another huge scandal not much heard about. Renewable energy is another overlooked resource. Across the world, huge developments have been made in the areas of solar and wind power, both in the developed and developing countries. Even our neighbouring countries such as China, India, Bangladesh and Sri Lanka have made tremendous achievements in this respect. In Pakistan, however, renewable energy is yet to make any notable contribution.
When it comes to energy policies, the situation is no different. There have been several energy policies in the country over the years; none, however, could deliver. These policies have been quite narrow in their scope. The famous 1994 power policy, for example, focused mainly on IPPs ignoring other energy resources and technologies. Similarly, the 2006 renewable energy policy, as the name implies, focused on renewable technologies alone. There have been hydropower policies and oil and gas policies, all falling short of providing a robust and coherent approach on national energy issues. It is, therefore, imperative to formulate an integrated and visionary energy policy that covers all the major aspects including oil and gas, power sector, hydropower, coal, nuclear power, renewable energy, energy conservation and management, energy security and energy marketing and trading.
The recent past provides an excellent reflection on the characteristic weakness of the governments to come up with a comprehensive energy policy. Ever since the disruptive arrival of the energy shortages in 2006, no meaningful policy has come about to overcome them in a sustainable manner. Some of the key appointments by the previous government in the energy sector – Adnan Khwaja as the head of Oil and Gas Development Company Limited, Tauqeer Sadiq as the chairman of the Oil and Gas Regulatory Authority, and Dr Asim Hussain, first as an adviser and then as a minister for petroleum and natural resources – were ample evidence of the lack of urgent and serious attention that these departments required. One finds it difficult to comprehend the wisdom behind appointing a medical practitioner to run the crucial energy ministry.
The Karkey Karadeniz Electrik Uretum of Turkey is the most expensive
ship-mounted power plant in the country, charging about 41 rupees per unit
Were rental power plants necessary?
The existing thermal power plants are underperforming by 3,000 to 5,000 megawatts because of lack of fuel (oil and gas) supply. The underperformance of oil-based thermal power plants is especially huge even when their share in electricity production has jumped from 16 per cent in 2005 to 37 per cent in 2012. The question that arises here is what is the reason for bringing ‘rented’ thermal power plants if the existing thermal power plants are unable to function on full capacity due to the lack of oil supply? Consequently, we have had rental power plants which received payments in tens of millions of dollars without supplying a single unit of power. The ship-based Turkish Karkey power plant – instead of its promised 230 megawatts has hardly produced 30 megawatts – is a clear example in this regard. The fallout of this project has been extremely ugly on numerous fronts, financially as well as in terms of Pakistan-Turkey relationship. The ongoing Karkey dispute, worth hundreds of millions of dollars, reminds us of the Hubco saga of the 1990s. The generous tariff structure offered to rental power plants also raised eyebrows and again resembled the IPPs scandal of the 1990s. The reckless tariff mechanism allowed these rental power plants to charge exorbitantly for the electricity they produced. The electricity generated from the Karkey rental power plant, for example, is reported to have cost 41 rupees per kilowatt-hour.
A pragmatic alternative to rental power plants would have been to address the issue of circular debt, to control transmission and distribution losses and thefts, and to revamp the ageing power plants of Wapda and Pakistan Electric Power Company (Pepco).
Is circular debt a problem of governance?
Circular debt is the amount of cash shortfall within the Central Power Purchasing Agency (CPPA), which purchases each unit of electricity generated in the country and then sells it to distribution companies (Discos). Due to the shortfall – which results from the difference between the actual cost of producing and supplying electricity, and the revenue collected by Discos from customers – the CPPA cannot pay power plants. The second factor in the accumulation of circular debt is insufficient payment by Discos to CPPA out of the collected revenue as these distribution companies give priority to their own cash-flow needs.
Technically, circular debt results when one entity withholds payments due to inadequate cash flows to discharge its obligations to its suppliers. The action of one entity has a knock-on effect on the rest of the entities in the supply chain. Each of the subsequent entity withholds its payments thus squeezing the operability of all. This revenue shortfall cascades through the entire energy supply chain, from electricity generators to fuel suppliers, refiners, and producers. This results in a shortage of fuel supply to the public sector oil-based electricity generating companies and IPPs, reducing the amount of electricity they generate by 3,000 to 5,000 megawatts, which in turn leads to load-shedding.
Circular debt is primarily a consequence of bad governance. It was created during the Pervez Musharraf regime when in 2006, the government decided to freeze electricity tariffs in the wake of an upcoming election (a typical tactic by governments to avoid making tough and unpopular decisions before the polls) while oil prices in the international market were skyrocketing.
Other major causes include ineffective tariff regulation, poor revenue collection by Discos, hefty transmission and distribution losses and thefts, and delayed and incomplete payments by the Ministry of Finance on subsidy provided to consumers as well as by the Karachi Electric Supply Company (KESC) for the electricity it purchases from the CPPA.
The volume of circular debt at the end of fiscal year 2012 was reported by the Planning Commission to be over 800 billion rupees. The real extent of the problem is, however, much lower, at 400 billion rupees. (Circular debt figures usually mentioned are the sum of the receivables of each organisation in the supply chain which ends up exaggerating the amount because of double counting. After all, one party’s payables are the other party’s receivables, and logically these should cancel out each other.)
Undeterred by load-shedding, Pakistani embroiderers work by candlelight – AP photo
Is there transparency on the issue of energy crisis?
Since status quo is the very essence of Pakistan’s political culture, transparency in the energy sector is, therefore, almost an alien phenomenon. Forget about transparency in projects and contracts, even information on the nature and intensity of energy crisis as shared by concerned authorities is often inconsistent and misleading. There is thus a great deal of ambiguity about the issues facing the energy sector.
Utilisation of the installed power generation capacity, for example, is an issue of great uncertainty. How, for instance, a shortfall of 5,000 megawatts, representing a 25 to 30 per cent gap between demand and supply, translates into 16 hours of load-shedding? Either the shortfall is much greater or there are other mechanisms and agendas to manipulate load-shedding which the public is unaware of. Similarly, there are uncertainties on the issue of circular debt as well, not only in terms of its precise origin and fallout, but also on the billions of rupees paid to retire circular debt.
Is there an issue of capability?
The energy crisis also suggests that there is scarcity of the right type of skills and professionalism among the ranks of policymakers and decision-makers. The state of affairs inevitably implies that successive regimes over the last decade have fallen short of showing due level of competence and commitment required to propel the energy sector forward in a healthy fashion. When a former deputy chairman of the Planning Commission was inquired about the dearth of competence, he replied: “Owing to nepotism, the system in general lacks expertise and capabilities.” A former head of a main energy department responded to the question by saying that “policymaking and decision-making forums do lack qualified experts.”
The energy departments have not only lost their cutting edge in conventional energy systems but they have also failed to build their capacity to embrace modern technologies. Pakistan does not have expertise in nuclear power generation (nuclear power plants are developed by China and we only get the training to run them). When it comes to renewable energy, energy conservation and management, we are almost clueless. Even in hydropower, the experts we developed during the construction of Tarbela and Mangla dams are almost all retired so when a new project starts there will be a serious shortage of technical experts.
The energy sector largely remains dependent upon foreign expertise on almost all fronts such as the development of project proposals and feasibility studies, design and engineering, manufacturing and commissioning. For the last many decades, training and development programmes were almost non-existent in Wapda/Pepco.
It, therefore, has been a lethal combination of bankruptcy at the policymaking and decision-making levels, and sheer weaknesses at the departmental levels that Pakistan has been pushed into such a disastrous crisis. Sliding down from a state of power affluence in 2002-2003 to a stage of over 40 per cent deficit in demand and supply by 2006-2007, and then a continuous slide downhill — as a matter of fact no other country in the world, even in Africa, has seen such a downfall in a time and age when countries across the world have energy sustainability as their top priority.
Is there a sustainable solution to energy crisis?
The energy challenges are undoubtedly grave but can surely be tackled — the gap between demand and supply can be efficiently bridged and the affordability of energy can be improved. A sustainable solution to the energy crisis lies in the utilisation of indigenous resources. Pakistan has to realise its strengths. In electricity generation, for example, emphasis has to be placed on hydropower and coal-based thermal power. A radical change in the generation fuel mix is crucial. Owing to distorted policies over the last three decades, the fuel mix has greatly shifted from hydropower to thermal power. The share of hydropower – which is by far the most economical – has receded from 70 per cent in 1970s to nearly 30 per cent in 2013. It is an eye-opening reality that the cost of electricity generation through hydropower is only 10 per cent compared to that of thermal power. In terms of thermal power, the priority must be on coal. Oil-based thermal power – the most expensive of the current options – needs to be abandoned.
Dam-based hydropower project shall offer a number of subsidiary benefits — such as additional water storage capacity and a cushion against flooding. The current water storage capacity in Pakistan is only for 30 days which is very low considering the country’s power generation and agricultural needs. India, on the other hand, can store water to meet its needs for 120 days.
There are countries than can store water to satisfy their requirements for up to a year. It is extremely crucial for Pakistan to go for the development of large as well as small dams to optimise its water storage capacity. Dams will also offer a cushion against the impacts of natural calamities such as drought and flooding. An argument often cited against the construction of large-scale dams is that of shrinking water resources because of global warming — global warming and its impacts on the natural water cycle is a reality. A positive approach to this threat, as is the trend across the world, is that we make the most of every drop of water available to us. Even in our neighbourhood, both China and India are presently developing tens of large-scale dams, but we are building none. It is noteworthy that China has completed the world’s largest hydropower project, Three Gorges Dam, only last year with a total capacity of 22,500 megawatts. Just to put things in perspective, this single project is almost equivalent to Pakistan’s total power generation capacity.
The utilisation of indigenous coal and hydropower, however, are medium to long-term projects and need some serious political will (especially in terms of developing provincial harmony) and resource mobilisation.
The short-term solution to load-shedding lies in control over system leaks and thefts, and reconditioning dysfunctional thermal power plants. On top of these, through effective load management, and energy conservation and management programmes the shortfall of electricity can be substantially curtailed.
The writer is a senior lecturer at the Glasgow Caledonian University, UK. He is the author of Energy Crisis in Pakistan: Origins, Challenges and Sustainable Solutions