Pakistan’s Energy Crisis
The Main Power Players
The main power players include those who generate power, transmit it, distribute it and regulate all such activities. The generators of
power are those who convert other forms of energy into electrical energy and there is no misunderstanding about them. However, the
terms transmission and distribution are used interchangeably by many which is wrong. Transmission is the process by which electricity
is brought from the main power
stations to the sub-stations at very
high voltages in the range of 132 kV
to 500 kV (high voltage means low
current which means lesser energy
lost as heat energy). These lines form
the main grid that runs throughout
the country ie: they form the large
distance part of the grid.
Furthermore they are bidirectional
(electricity can travel in both
directions) which is necessary to
balance
the
whole
system.
Distribution lines on the other hand
transfer electricity over short
distances, from the sub-stations to
the final user. Traditionally these are
mono-directional but this has started
to change in recent years in
technologically advances societies.
1. Power Generation: power is generated by public as well as private producers. A non-exhaustive list of the main producers is
given below.
a. Public Producers:
i. WAPDA: the Water and Power Development Authority handles only the energy produced by dams. Its
mandate however also includes the development of water resources in an efficient manner. WAPDA’s power
wing was unbundled in 2007 after which thermal generation,
ii. PAEC: the Pakistan Atomic Energy Commission is an independent governmental authority and a scientific
research institution concerned with research and development of nuclear technology and the use of this
technology for peaceful purposes, including energy generation.
iii. GENCOS: the Generation Companies which deal with mainly the thermal energy.
b. Private Producers: some private entities can be grouped as:
i. IPPs: the Independent Private Producers are entities that own a facility which generates electricity which can
be sold to public utilities or end users.
ii. SPPs: the Small Power Producers are basically private producers who generate electricity below a certain
amount (normally below 50-80 MW) and usually by renewable resources of energy.
iii. CPPs: the Captive Power Producers are independent person(s) who set up a power plant to satisfy their own
energy needs. It could be a single person or a housing society or an industry. Setting up of solar panels with
a battery bank at a house, or installing a steam turbine to produce electricity for a factory are examples.
2. Power Transmission: all these producers sell their energy to the CPPA (Central Power Purchasing Agency) which transmits it
over the national grid or the NTDC (National Transmission and Dispatch Company). NTDC reports to PEPCO.
3. Power Distribution: these include 10 public sector DISCOS (such as LESCO, IESCO, PESCO, QESCO, SEPCO) and 1 private sector
K-Electric (previously known as KESC, involved in generation besides distribution and operates only in Karachi).
4. Independent Regulatory Authority: NEPRA (National Electric Power Regulatory Authority) is an autonomous regulatory body.
Its main role is to improve the efficiency and availability of electric power services by protecting the interests of investors,
operators and consumers with a view to promoting competition and deregulating the power sector.
Energy Mix
In Pakistan, power is being generated by using multiple resources, though none of them is being utilized to its full potential and many
resources remain largely or completely untapped. The table gives a brief overview of how much energy public and private sectors are
contributing to the national gird and how much energy is coming from each of the resources being used. The figures given represent
percentages.
Public Production
Private Production
Total
1.
Hydropower
31
1
31.5
Thermal
25
40
65
Nuclear
3
3
Solar & Wind
0.5
0.5
Total
58.5 (approx)
41.5
100
Hydropower: there are 2 types of
dams; reservoir type and run of the
river type. The former need a large
reservoir to be constructed so that
the volume of the reservoir creates
the pressure required to turn the
turbines, while the latter are built at
locations where the water flow is
sufficiently fast to provide the
necessary force. It has been
estimated in a few studies that
Pakistan can potentially generate
somewhere b/w 41000-45000 MW
of power if its hydro-resources are
utilized properly. As of now Pakistan
generates only 7097 MW of
hydropower. Many projects are
under way and many have been
proposed. It is wrong to consider
that hydropower projects are
shrouded in controversy. Only
Kalabagh Dam is (so far).
a. Mangla Dam: located on
the Jehlum River, this
reservoir type dam has an
installed capacity of 1000
MW, planned to be
increased to 1120 MW by
increasing its height.
b. Tarbela Dam: located on
the Indus River, this
reservoir type dam has an
installed capacity of 3478
MW, planned to be increased via extension projects Tarbela IV and Tarbela V. The deal on the former was signed in
2013 and will increase the capacity to 4888 MW.
c. Ghazi Barotha Hydropower Project: made in 2002 on River Indus near Attock, downstream of the Tarbela Dam, it is
run of the river type and contributes 1450 MW of power.
d. Projects in the Pipeline: Neelum-Jehlum (969 MW), Tarbela Extension IV (1410 MW), Karot Hydropower (720 MW
which China has agreed to fund out of its $46 billion investment).
e. Early Completion Phase Projects: Diamer-Bhasha (4500 MW), Dasu Dam (4320 MW), Kohala Hydropower (1100 MW)
need policy continuation to be completed in time.
f. Kalabagh Dam Controversy: arguments against the Kalabagh Dam (KBD) and their counter arguments are as follows:
i. KPK: the province levels the complaints that a large part of its land will be flooded due to the large resevrior
of the dam. As a result, people residing in those areas will be displaced and those residing in the vicinity will
be endangered due to an increased threat and high possibility of floods. This claim may very well be true and
is most likely to be. The fact however, remains that because of the displacement of people, a dam that could
potentially solve country's problems should not be stopped. Instead, arrangements should be made by the
government to fcailitate these people and give hem compensation in the form of rehabilitation. When such
concerns were put forward, the government should have right away started a rehabilitation program for
these people and that program would have had their support if the people from these areas would have
been employed in such construction programs for rehabilitation. Plus, we have seen that even without the
dam, floods have affected almost all the concerned areas. In such a case, it does not matter whether floods
affect the people in the absence of or in the presence of the dam. If they are to be affected in any way, it is
better that the dam be present. The floods in these regions happen because of the entrance of the Kabul
River into the channel (the channel needs to be widened instead of the KBD project being abandoned).
However, the government must take steps to control floods by taking measures that Germany and Australia
have taken by automating all their river, tributary and canal gates for better water distribution and artificial
re-distribution to manage water level during floods.
ii. Sindh: this province on the other has leveled its allegations that the construction of the dam will divert all
the water to the upper regions of the country, which otherwise could have been used by Sindh. Sindh also
claims that this will lead to the desertification of Sindh. The fact however remains that Sindh itself has not
utilized the water properly, the proof of which is a shortage of water for all purposes even in its Metropolitan.
And even the irrigated land has been used by the feudals for their own advantages. However, one must
wonder that water cannot be held by the KBD forever. It will have a maximum capacity and water will have
to be discharged in order for the electricity to be produced. So far as using water for irrigating KPK and South
Punjab is concerned, the amount of water to be diverted for such purposes can be negotiated b/w the
provinces and then the reservoirs be built accordingly. However, the left bank reservoir is unlikely to be built
if the claim that it lies on a fault line is true (although it never stopped Quetta from being populated). But in
this case too, the studies that have been conducted seem to be inadequate.
iii. Environmental Effects: the environmental damage is however an unfortunate consequence of progress. It
could be true that the Indus river basin will be degraded if water is stored upstream and this will endanger
the mangroves which provide a breeding ground for many fish species. This could also affect the livelihood
of those who are economically dependent on fishing in such areas.
Some other arguments presented as facts about which one cannot be certain or which are completely false and have
been put forward to mislead the illiterate people include:
i. Feasibility: one of the claim is that enough water is not available for the dam to be viable. Early reports based
on studies conducted by experts from various organizations and countries concluded that the site was
suitable, the plan was technically sound and the project was overall feasible. Later studies conducted locally
have concluded otherwise.
ii. Irrational: many ‘nationalists’ try to gain political mileage by misleading the masses using irrational claims
such as the ‘power’ of the water will be drained away by Punjab before it reaches Sindh (where power is
used to refer to electricity generation).
Some of the arguments for the KBD are as follows:
i. Energy Needs: Pakistan faces an acute energy crisis which needs to be solved in such a way that the cost of
electricity remains relatively low. In such a situation KBD could be a boon from heaven for Pakistan as it will
contribute initially 2400 MW and ultimately 3600 MW to the national grid at extremely low costs. Currently
Pakistan's energy needs are a little north of 20000 MW while its production capacity is more than 24000 MW
(but inefficiencies have created the deficit of 4000-5000 MW). In case we are able to make our generation,
transmission and distribution systems efficient and add the produce of KBD, we can rid ourselves of oil
imports and save a lot of our foreign currency reserves. Plus, the energy is not only cheap (besides the initial
high costs of construction which can be covered in 9-10 years according to estimates in feasibility and
planning reports), it is also environment friendly.
ii. Irrigation: KBD will also allow a lot of agricultural land to be brought under irrigation especially the land in
KPK and South Punjab via its right and left banks respectively. Critics may put forward the claim that we need
to utilize water more efficiently and need better yield varieties instead of more water for irrigation to
increase our agrarian produce but nearly 4 million acres of land in KPK still remain non-utilized due to nonavailability of water for irrigation purposes.
iii. Economy: KBD can also provide employment opportunities for people as it will need labour, engineers,
architects, suppliers, transporters etc in large numbers.
The positive gestures and possible steps to resolve the issue could be:
i. Punjab: the ‘dominant’ province has agreed not to claim any royalties from the services and benefits that the
dam will provide to other provinces.
ii. Awareness: people need to be educated by the media and in schools not so that they can be convinced about
the project but so that they are capable enough to make up their own mind on any issue, instead of being
misled by various vested interests (feudals and politicians, the former misleading them so that they can
themselves continue to enjoy their own position and exploit the masses for their benefit and the latter
intentionally politicising such issues in order to appear as saviors of the people and win votes).
iii. Nation Building: a consensus needs to be built so that provincial interests do not come in the way of national
progress.
iv. Proper Studies and Research: some points which are disputed and can be contested, should be researched
properly so that they can be settled in a rational and proper manner.
v. Governance: the decision making process should be done on true democratic principles. Any decision made,
studies conducted and the costs borne should be made public so that the project is no longer shrouded in
2.
3.
4.
secrecy (this has been one of the major reasons for the whole controversy - initially it was this secrecy that
led to the suspicion of other provinces with regards to Punjab. At first the project was supposed to be only a
reservoir for irrigation and then the power dimension was also added and so on. Good governance should
be a hallmark of such a project instead of trying to keep it all secret and hushed up).
Oil: nearly 35.5% of Pakistan’s total energy supply is catered for by oil based thermal power stations. The product used from
crude oil to produce power is the furnace oil (FO). Setting up FO-based power plant is among the most tested, safest and
cheapest option. Our governments’ dealings with IPPs in the 1990s led to a boom in such power stations and the later increase
in oil prices in 2002-08 led to increased generation costs. This increased cost was not passed on to the customers, and the
subsidies offered and consumer tariffs were not enough to cater for the difference. Moreover, Pakistan imports nearly all of
its oil from a single source – the Middle East – especially after the sanctions on Iran (while Indians bought their oil on deferred
payments from Iran even during the sanctions). If Pakistan could diversify its supply, it could probably get the FO at lower rates
(competition no matter how small has its advantages including a lower cost as well as a relatively more stable supply since the
choking of one supply does not lead to a complete cut-off). Local refining capacity should also be increased to take advantage
of the locally produced hydrocarbons (no matter how small an amount) which can be processed to get refined petroleum
products.
Natural Gas: gas based thermal power stations
account for up to 29% of the net power supply
in Pakistan. For a new country like Pakistan the
discovery of the largest gas reserves in the world
at Sui in 1952 must have been nature’s greatest
gift. But over the years, natural gas has been
squandered away by our country as it has been
used for virtually everything from providing a
fuel for domestic use to making fertilizers,
running industries and powering vehicles not to
mention its use for electricity generation (these
uses were started and promoted during the
Musharraf era and many oil based thermal
plants were converted to either purely gas
based plants or dual fuel generation plants). The
result is that the originally 12 trillion cubic feet
(TCF) of gas are now depleted and the remaining
reserves are estimated to be at only 2 TCF.
Although gas discoveries have been made at
other locations especially in Sindh, we must
learn a lesson from history, though it is unlikely
that we will. Gas pipelines for the import of gas
from other countries, such as the IPI and TAPI
pipelines were announced but became
pipedreams due to internal capacity constraints
and external geopolitical scenario. In such a situation, LNG could have been a viable alternative in the short term (it has
internationally been used as a short term solution for power shortages) but governance issues of Pakistan did not allow the
implementation of a reliable import mechanism. Plus Pakistan is yet to take advantage of SNG (Synthetic Natural Gas) which
provides a direct substitute for the natural gas and is produced from fossil fuels such as coal, oil shale and biofuels. Dr. Samar
Mubarakmand proposed underground gasification of coal to produce SNG but the government has gone for the more
expensive option of importing LNG. The experiment of gasification may not have been successful but experimentation is not
about being successful in the first go. It is about improving on what one has learnt until one achieves what one desires to.
Instead of abandoning the project completely, the government could have given grants or arranged competitions b/w different
interested groups so that the technology could have been improved and eventually implemented. SNG if used, will allow
Pakistan to use its existing gas infrastructure and gas based power plants without radical modifications to either. Plus, the
carbon emissions from SNG will be lower than if coal was used directly.
Nuclear: electrical energy converted from nuclear energy contributes only 3-4% to the national electric power supply (around
750-800 MW). KANUPP 1 was the first nuclear power plant (and was used by PAEC as a guinea pig) and provides 137 MW.
CHASNUPP 1 & 2 provide 300 MW each. CHASNUPP 3 & 4 are expected to be completed in 2016-17 and will provide 340 MW
each. KANUPP 2 & 3 each of 1100 MW will come on line in the first half of the next decade. Nuclear plants are expensive to
construct but provide cheap energy in the long run. However, they also pose threats to the environment and to the population
as was seen in the case of Chernobyl and Fukushima disasters. Arguments have been given in favour of and against the
installation of the two nuclear power plants along the coast line of Karachi (installing nuclear plants based on untested
5.
6.
technology in an over populated city is no less than asking for a disaster to happen). Even countries like Japan, Germany and
Switzerland are moving towards other options. A small earthquake or a sea storm could be enough to cause a nuclear mishap.
Solar and Wind: the use of these sources is virtually absent (electricity from wind power contributes almost 200 MW, with
most of the 50 MW power plants located at Jhimpir and Gharo, both in Sindh). Pakistan has large land pieces where for around
285 days in a year are sunny days especially in the Balochistan region and the desert areas. The wind corridors in Sindh have
been estimated to have a power production potential of 43000-50000 MW. But these areas have not been invested in. No
doubt that the electricity produced using these sources will come with a high price tag, but they can be used to supply electricity
to small nearby areas. Pakistan has started a few wind power projects which will supply around 50 MW each and will come on
line in 2016-17. Solar power is being used in developed countries to de-stress the transmission system by encouraging
people/communities to install such power plants domestically. Large plants are avoided because their synchronization with the
main gird is difficult (it tends to de-stabilize the central transmission system). Pakistan however has started its Quaid e Azam
Solar Park at Bahawalpur which is supposed to produce 1000 MW in the year 2016 (its 100 MW Phase 1 has already started
working thanks to the Chinese investment, but it has been shrouded in controversy – claiming to produce 17 MW only at a cost
of nearly Rs. 24 per unit without including the transmission and distribution costs). Many experts have also warned that such
a large scale solar power project should not have been undertaken (solar projects on such a scale remain untested to date).
Due to synchronization technicalities, higher costs and low efficiency (solar plants can provide energy only during the day and
making the grid dependent on day-night cycles is not a good idea and this may very well contribute to the fact that the average
output of the 100 MW phase 1 is around 20% of the intended output), it might have been better to invest in hydropower or in
smaller solar power units which could provide power to small societies. Private initiatives to use solar power for specific building
could have also been an option (decreasing transmission and distribution distances will reduce line losses and rooftops of large
buildings could have been used instead of using such a large area).
Coal: on average, the world produces 41% of its energy from coal and India, China and US produce 56, 66 and 42% respectively
from coal. In Pakistan however, coal contributes almost nothing to the energy mix despite the existence and discovery of one
of the largest single location coal reserves at Thar. Pakistan has an estimated 186 billion tons of coal reserves in total (Thar +
all others) and its extraction remains at 3 million tons a year while the demand is around 9 million tons (the gap is bridged by
imports). Those 3 million are also mined using the old hand and shovel method, hence the low figure. Pakistan has some coal
based power stations but most of the coal power projects have been proposed and shelved or have been inefficient due to a
number of reasons. The Lakhra power station at Khanot/Jamshoro for example has an installed capacity of 150 MW (three
plants of 50 MW each) but it has been producing only 20-50 MW. The Chinese designs on which the plants are based are
incompatible with the coal variety available at Lakhra (1 million out of the 3 million tons is mined at Lakhra). Because of this,
the boiler gets choked and only one of the three plants is active at a time while the other two get serviced. However, many
coal based power plants have been proposed especially in cooperation with China, Qatar and private investors such as the Thar
Coal Plant with an initial capacity of 660 MW expanded to 1320 MW while the proposed phase 2 will expand it further to an
eventual 3600 MW and the Jamshoro Power Plant to which coal-based capabilities will be added.
New Projects
Year
2014
2015
2016
2017
2018
Name of Project
Guddu 1
Nandipur Power Project
Guddu 2
Quaid e Azam Solar Park (Phase 1)
Quaid e Azam Solar Park (Phase 2)
Guddu Steam (3)
Quaid e Azam Solar Park (Phase 3)
Neelum-Jehlum Hydel
Golen Gol
Patrind HPP
Tarbela Extension 4
Coal Plant at Sahiwal
Coal Plant at Jamshoro
Thar Coal Plant
Coal Plant Larkana
Gaddani Power Park
Total Addition up to 2018
Capacity (MW)
Agency
Fuel
243
425
243
100
300
261
600
969
106
147
1410
1200
1320
1320
1320
6600
GENCOs
GENCOs
GENCOs
PPDB
PPDB
GENCOs
PPDB
WAPDA
WAPDA
PPDB
WAPDA
PPDB
GENCOs
GENCOs
GENCOs
Public + Pvt
Gas
Oil
Gas
Solar
Solar
Gas
Solar
Hydel
Hydel
Hydel
Hydel
Coal
Coal
Coal
Coal
Coal
16564
As is evident from the table (source: PEPCO), some projects have been shelved by now or put on the back burner such as the Gaddani
Power Park and some have been delayed such as the Quaid e Azam Solar Park, Guddu and Neelum-Jehlum Hydel Project to mention a
few.
Cost Comparison
Source of Power
Estimated Cost (Rs. per KWh)
Hydroelectric Power
1.25
Coal-Fired Power
12.5
Furnace Oil Based Electricity 16
Gas Based Electricity
4.5
Nuclear Energy
1.3
Wind Power
14
Solar Electricity
22
Although coal-based power generation price is estimated at Rs. 12.5 which is only a little lower than the Rs. 16 price of oil-based power,
many people have estimated that the per-unit price of electricity generated b using imported coal will be 50% that of the per-unit price
of oil-based electricity.
Causes of the Crisis and Proposed Remedies:
Pakistan’s current installed power generation capacity according to the Economic survey of Pakistan 2014-15 is 22577 MW (though
some officials state it to be at 23928 MW) out of which hydro and thermal including nuclear powers occupy 7097 and 15480 MW
respectively. Pakistan’s demand for electricity including K-Electric peaked at nearly 23000 MW in 2015. This should not have been an
issue but the fact of the matter is that our actual power generation is lower than the installed capacity. Maximum power generated in
the summers remains around 17000 – 19000 MW (out of which hydropower can contribute only 7000 MW and thus the country is
banking mainly on thermal power) and the shortfall ranges b/w 4000 and 6000 MW. According to the PEW President, generation stands
at 10800 MW while demand is at 15500 MW during most of the months (the gap would widen to 7000 MW in summers according to
him). There are a number of reasons for this crisis besides the fact that the efficiency of all plants at all times cannot be expected to be
100%. Although the major issue is of governance, the problems can be broken down into three main categories: the problem of
affordability (we need to find ways to make electricity consumption affordable), the problems of losses (line losses and revenue losses
in the form of non-payment of bills etc) and the problem of reliance on imported fuel (this leads to foreign exchange losses due to
depreciation of the Rupee and results in higher costs and an imbalanced energy mix – we need to rely more on indigenous resources).
1. Inefficiencies: old generators and old turbines tend to be inefficient as compared to those based on new technologies. Our
system needs to be modernized in order to make it efficient. Plus inefficiencies are not only related to the technical equipment
and system but also to the staff. People whose productivity is lower than acceptable and who add unnecessary delays in various
processes including approvals of projects or their planning and feasibility studies, must be dealt with accordingly instead of
being given political cover/backing.
2. Irregularities: staff involved in corrupt practices such as bribery (in which virtually anyone from the line man to the general
manager can be involved), reversal of meter readings (done by meter readers), politicization of issues (done by politicians to
gain political mileage) etc must be checked and made an example of in order to set a precedent. In some instances, people
have been exempted from paying their electricity dues in one month and that months’ units have been added to the next
months’ electricity bill. This has the effect of raising the per-unit cost because of the division of the number of units consumed
in categories and charging a higher price per unit in successive categories.
3. Lack of Proactive Planning: this involves an absence of or a lack of planning to deal with future needs and requirements before
they transform into crises. This can happen for a variety of reasons. Not keeping records of electricity demand and supply,
improper forecasting, not maintaining sufficient stocks of raw materials needed (oil and gas for example), red tape, a habit of
politicians to ignore the problem until elections or even an ignorance of the problem are a few of the reasons. The results of
this have already been seen: lack of a continuous supply of furnace oil and gas due to which thermal power stations during
that period of shortage output only a small percentage of their actual capacity, overloaded power stations which operate near
full capacity leading to their breakdowns and failures etc. Finally, the problem is realized only when it has turned into a crisis
and then, the matter is used as a tool for election campaigns and/or is delayed even further (many current projects have been
delayed as well such as the Neelum-Jehlum project).
4. Imbalanced Energy Mix: currently, Pakistan is dependent too much on gas and oil. This dependence on thermal power stations
(65%) has led to the high electricity bills and the problem of circular debt as well, thanks to the Power Policy 1994 (under which
IPPs were allowed to operate under very lenient conditions without any regards to efficiency, source of fuel or technology and
the increase in cost was to be borne entirely by the buyers). Pakistan has in the last two years tried to shift to coal which is a
welcome sign (most people will say that it will add to the carbon emissions but the problem is to deal with CO2, not with coal
usage – plant more trees to bring Pakistan’s currently 5.8% forested area up to the standard 25% or just increase it to more
than 10% since trees consume CO2, encourage public transport – not mass transit systems but public transport). R-LNG (Regasified Liquefied Natural Gas) can also provide electricity in the short run. In the long run however, Pakistan needs to rely on
hydropower energy due to its low cost and environment friendly nature. However, there should be no illusions about the costs.
In the beginning, hydropower will be expensive as the costs of constructing the dams have to be recovered. But in the long
run, hydropower will be very cheap. Solar and wind power can and should also be exploited though instead of doing so at a
large scale such as in the case of Quaid e Azam Solar Park, it will be better to promote installations of solar panels on building
5.
6.
7.
roof tops and in houses where the losses will be low and synchronization issues will also not be as difficult to solve. The
electricity generated by these solar panel units can be added to the main grid by a net metering system (smart grids). Wind
power can also provide a good short term solution though it is expensive. But if a balanced energy mix is developed, then the
high costs incurred by one or two sources can be easily compensated for by the low cost generation methods.
Non Utilization of Indigenous Energy Resources: most of the furnace oil used by Pakistan is imported and just last year $11.7
billion worth of oil was imported by Pakistan. Large local coal reserves have been virtually ignored (Pakistan has 186 billion tons
of coal reserves in total while its annual demand is 9 million tons out of which only 3 million tons are mined locally), hydropower
potential estimated to be b/w 41 & 45 GW and some even say 60 GW has been also wasted, and solar and wind power have
not been utilized either. We should try to increase our oil refining capacity and local oil production capacity, mine our coal
reserves and utilize other resources
mentioned as well.
Line Losses Including Thefts:
statements of former GM planning
WAPDA and former Managing
Director PEPCO indicate that line
losses cannot be in more than a
single digit unless the system is out
dated, thefts are rampant and
other technical losses are present.
They say that up to 10% losses can
be written off as line losses, but if
the transmission and distribution
system is up to date, then the rest
must be assumed to be technical
losses and thefts. From the chart then one can see that Pakistan is marred by electricity theft and probably losses due to out
dated systems. Solution for the latter is simple but costly, while for the former, we have to deal with the problem on multiple
fronts. First, the smart meters that have been installed should be utilized properly which can only be done after a proper
reformation and up gradation of the system (smart meters allow billing information to be communicated to the supplier
automatically without the need for meter readers and they also allow a constant monitoring of electricity usage and any
abnormalities in the trend of usage can help to curb theft of electricity). Meter readers will be eliminated with smart meters
and this will reduce the irregularities of meter readers who may be complicit in many crimes related to electricity theft, under
billing etc. But till the time that these steps can be taken, it is imperative to do the best with the system we have. People should
be made aware that reporting theft of electricity instead of just ignoring the people who indulge in such criminal acts. In this
regards, the Qaumi Razakar and community policing systems of police can be used to our advantage. Such criminal acts must
be brought to the public’s knowledge immediately before the criminals can get political cover. Strict action must be taken
against all industries that indulge in illegal activities, irrespective of who owns the production units (a single production unit’s
theft can amount to the electricity used by 1500-3000 households on average and the gas theft can amount to the gas used
by a greater number of houses). Moreover, there are whole communities and housing areas of up to 500 houses each where
electricity is being used without any proper payment (many allegations have been made against the residents of the Green
Town area in Lahore). People need to be made aware that the non-billable electricity and decrease in revenue due to nonpayment of bills (according to estimates 15% of the total billed electricity remains non-paid for) has to be paid for out of the
tax money collected by the government (the tax collected from the people among whom are included those who are involved
in the theft) and that had the theft not taken place, the same tax money could have been utilized for something better.
Increase in Demand: firstly, population explosion is a major problem not just for Pakistan but for humanity as a whole. Overpopulation exacerbated the basic economic problem (that of scarcity) and this leads to greater competition for the limited
resources available. In a lawful society, those with access to the resources survive while those without access either learn to
live without such resources or use them only sparingly. In a lawless society however, there are no rules for the competition
and people see theft, bribery and such practices as tools of competition (instead of competing economically). Population grows
in an exponential manner while the supply of commodities and products can at best be expected to increase in a linear fashion
on average and as the supply is unable to keep up with the demand, the economic problem worsens and results in turn in an
increased lawlessness and/or exploitation. Secondly, despite the overall under-developed state of the country, we have been
promoting a culture of consumerism and lavish life style due to a number of factors. Non-essential products have become an
important part of our lives and even the essential ones have been misused and abused (the UPS for example installed in virtually
every household actually contributes to the energy crisis instead of helping to deal with it). Plus we have not been able to
promote a culture of using energy saving devices. Thirdly, the growth in industry and agriculture has also led to a rapid increase
in demand for electricity. Commercialization of the urban areas has also played its part. While these activities must be
promoted for the economic growth, we need proper checks and balances to deal with the irregularities and thefts in all three
sectors.
In short, we need to improve our energy mix so that we rely more on low cost hydropower in the long run, shift to smart grids instead
of the out dated system in place today, cut costs by reducing and ultimately eliminating irregularities and inefficiencies including line
and technical losses, thefts, over-billing and in some cases non-billing. Moreover, we need proper and proactive planning, policy
continuation (one government should not discard the projects started by the previous governments and should take action based on
national interest rather than party politics), and utilization of our local resources such as the Thar coal. Many CPP units have been
installed in Pakistan but they have been working at low efficiencies due to a number of reasons. Instead of banning such practices, the
government must encourage efficient captive generation of power and incorporate the excessive power into the national grid using net
metering.
Circular Debt
1. What is Circular Debt: circular debt is a situation in which a string of debtors and creditors exists in a fashion such that the net
final creditor in the string is indebted to the first creditor. Every member is both a debtor and a creditor. In simple terms, say
we have three people A, B and C and each owes another person to complete the circle. A owes B who owes C who owes A.
There can be multiple types of circular debts:
a. Net Balance of Zero: for example, A owes Rs. 100 to B who owes Rs. 100 to C who owes Rs. To A. The net balance is
zero since everyone’s receivables are equal to what they owe to another party.
b. Reconciled Positive Balance: for example, A owes Rs. 100 to B who owes Rs. 50 to C who owes Rs. 100 to A. The final
simplified situation is that C owes Rs. 50 to B. This is a non-zero net circular debt.
In Pakistan’s case however, the situation is a bit different since C does not owe anything to either A or B and the circle is not
completed. A better name would be a “linear debt chain” or a “linear chain of receivables” but since the term has become
common, we will keep on using it. We now move on from ABC to the actual situation in Pakistan.
2. Circular Debt in Pakistan: most of the crude oil is imported and the foreign suppliers have to be paid for them to maintain their
supplies and there can be no debt beyond the terms of agreement. The oil refineries then sell the refined oil to oil marketing
companies who sell it to the IPPs or the WAPDA owned GENCOs who in turn sell the produced electricity to the DISCOs. The
tariff at which the electricity is to be supplied to the consumers is decided by NEPRA, after receiving government approval. In
2009, Power Holding Company Limited (PHCL) was formed by the government to pick up the debt of DISCOs and GENCOs, so
that their accounts could be cleared. The transfer was on paper from the accounts of the distribution and generation companies
to that of the PHCL and no cash payment was made so that for some time now Rs. 335 billion have been parked with the PHCL
which means that the net circular debt is Rs. 335 billion more than what the government announces it to be. The figure
announced by the government as “payables to the power sector” is called the stock of the circular debt. Circular debt of
Pakistan:
a. Pre PML-N Situation: over the years, the stock of the debt had gone up to Rs. 503 billion. In June-July 2013, right after
the PML-N came to power, it cleared Rs. 480 billion out of this stock though many IPPs contested that the amount
that the government claimed to have paid was different from what had actually been paid. Plus it was also alleged
that the whole exercise was illegal as the government had paid the dues without having an audit conducted first.
However, the remaining stock was of Rs. 23 billion.
b. The Situation Today: in March 2015, the stock was announced to be Rs. 280 billion while in October 2015, Ishaq Dar
has announced that it has increased by 11.78% to Rs. 313 billion. The total arrears are therefore Rs. 648 billion
(313+335).
3. Causes and Recommendations: various causes and remedies of circular debt are as follows:
a. Tariff Deciding Mechanism: this is where the problem starts. The tariff decided upon has two flaws:
i. Uniformity: the government is still influenced by a legacy system that supported a single postage stamp for
all consumers and a single generation cost for all producers. This has primarily been due to the reluctance to
promote an open market system and to ensure a maximum role of the government in economic regulation.
ii. Static, not Dynamic: the tariff does not change according to the changing costs of operations and
international oil prices and is therefore unable to cover all the costs incurred by the power producers. The
issue then is essentially that of revising the tariffs upwards in a timely manner.
To deal with this issue effectively, implementation of differential tariffs determined by the regulator of the DISCO
territory must be allowed so that tariff can be determined with the main aim being covering the costs incurred rather
than the main goal being political popularity (tariff is kept down by the government in order to not lose its voters and
even to increase its voter base).
b. Subsidy: there comes into the equation then as a result of the flawed tariff determination process, an element of
subsidy the cost of which the government has to pick up (whatever the difference b/w the cost of production and the
tariff charged is, has to be paid for by the government of Pakistan to the DISCOs). By failing to foot this bill, the
government builds up the circular debt. The payment is often not paid on time or in full and is allocated primarily on
the basis of a ‘just in time’ response to the power sector. If steps taken to improve the tariff decision making procedure
are implemented, there will be no need for a subsidy and the same tax money will then be spent for something better.
c.
4.
Fuel Price Adjustments: the price of electricity varies on a regular basis due to changing cost of fuel. The FPA is a
mechanism by which monthly variations in the fuel costs as compared with the reference amount determined in
NEPRA’s tariff are passed on to the end user. There are two problems with this mechanism in Pakistan:
i. Delays: NEPRA delays the implementation of this adjustment often by 2-6 months. When fuel prices increase,
these delays cause the DISCOs and GENCOs to incur more than the charged price and thus they contribute
to the circular debt.
ii. Using the Past Data: instead of using projected fuel consumption and cost, NEPRA uses historical data and
an annual reference amount. The method does not include a process for looking ahead as global fuel prices
change and the country’s fuel mix ratios differ from the reference values. So when fuel adjustment prices
change, they swing rapidly causing unrest among the consumers.
d. Inefficiencies of GENCOs and DISCOs: overstaffing, corruption, outdated equipment and obsolete technologies, poor
maintenance of plant equipment and free provision of electricity to WAPDA employees (estimated to cost more than
Rs. 100 million per day to other consumers) all contribute to the cost of electricity that consumers are being
constrained to bear. These factors contribute to the tariffs remaining high and to their increasing trends. The problem
of affordability, high operational costs and lower production capacity than the installed capacity are thus directly
related to the inefficiency and irregularity issues of the GENCOs and DISCOs. Privatization of DISCOs has become
essential to solve this problem. Many have proposed the privatization of the GENCOs and eventually, it might have to
be done but that of DISCOs is more important and should be done as soon as possible due to the need to take actions
that ensure cash flows to the GENCOs. Once privatized, the DISCOs will decide the tariff according to the monetary
needs as mentioned earlier, non-productive staff will be replaced and unnecessary staff will also be done away with.
Helping people get away with thefts and irregularities will also be checked. As the concern shifts to recovering all
costs, the problem of cash flows to the GENCOs will be resolved. Only then can one expect the GENCOs to operate as
they are supposed to (if what is owed to the GENCOs is paid to them, they will be able to pay for the required fuel,
produce electricity according to their capacity and then sell it). Once this gap in the debt chain is bridged, oil marketing
companies will be able to buy oil from the refiners and so on. Moreover, privatizing the GENCOs right now without a
proper structure and without the privatization of DISCOs will be of no use because it will essentially be a scam with a
government liability being created in the shape of a capacity payment which never had to be discharged when the
GENCOs were operating under PEPCO (during the past few years, IPPs have been giving the government ultimatums
that either their dues be paid or they will wind up their operation. In such a scenario, where the same problems exist
in the private sector due to the inabilities of the DISCOs, no one in their right will invest in generation or they will just
receive the minimum capacity payment with the express knowledge that the required fuel will not be available).
e. Electricity Theft: this happens in a number of ways and in a number of sectors (domestic, industrial, commercial and
agricultural) with and without the complicity of government officials and employees. But people who protest and cry
“provincialism” but do not pay for the electricity they, use must also be identified, arrested, tried and punished if
found guilty.
f. Poor Collection of Electricity Bills: in collusion with officials and employees and even without their help, many people
and organizations/departments have been able to avoid payment of bills. While some of the DISCOs are relatively
better at collecting the receivables, some are not. This can be gauged by a USAID report according to which, four of
the DISCOs (HESCO, SEPCO, PESCO and QESCO) were responsible for 83% of the total non-collected amount in 2012.
The reasons for poor collection are as follows:
i. Poor Collection from Private Consumers: some of the DISCOs performed poorly while others did better. The
problem is not uniform throughout the country (at some places it is worse than at others, though it exists
virtually everywhere). The main reasons include political interference, DISCOs’ lack of accountability, failure
to disconnect defaulting customers, lack of modern technology for revenue collection (even modern
metering methods have not been employed properly) and fear of protests.
ii. Non-Payment by Provincial Government and AJK: DISCOs supply electricity to various government
departments, schools, hospitals, police stations etc. Many of them do not pay their dues on time with the
excuse of insufficient budgetary allocations etc.
iii. Non-Payment by Federal Government, FATA and Agri Tube Wells: federal government departments,
government owned corporations and autonomous bodies often do not pay their bills in full or on time. Due
to poverty in FATA and palatable attitude of the government towards the people in that region have made
collection of bills from FATA a challenge. Balochistan is the only province which receives agricultural tube
well subsidy.
Recent Steps Taken by the Government: analysts had recommended the payment of dues even by means of printing money if
necessary since 2012 but they had also given as pre-requisites, the reformation and reorganization of the power sector along
the lines given above (checking inefficiencies, privatizing DISCOs, changing fuel adjustment and tariff determination
mechanisms etc) and had warned that solving the circular debt problem by such large capital injection would be a one-time
solution, thus the necessity of taking all the recommended steps simultaneously. But the government did so without
implementing the necessary reforms and we have seen the results – accumulation of the debt once again. However, the
government of Pakistan and IMF have in May 2015 agreed on a plan to deal with the circular debt. The plan includes
privatization of power distribution companies and bringing the energy sector to full cost recovery. These are welcome steps
but their implementation is yet to be seen. Ishaq Dar too has announced the steps that the government will be taking (some
of which will be useful but only if implemented properly and timely):
a. Reduction of electricity subsidies to 0.3% of the GDP (Rs. 90 billion) and the allocation of additional 0.1% for arrears
clearance.
b. Improving collections and reducing operating costs, losses and price distortions in the tariff structure.
c. Taking advantage of low ate payment surcharges and higher system losses were incorporated in 2014-15 tariff costs
in order to arrest a portion of the build-up of the circular debt and improve cash flow of the system.
d. The government has promised the IMF to move the debt of PHCL to the balance sheet of the DISCOs where
privatization will take place (IESCO, LESCO and FESCO are to be privatized in 2016).
e. Performance contracts have been signed with the Board of Directors of 9 DISCOs to improve efficiencies and
regulations. Their performance is to be monitored on a monthly basis as per the agreement.
f. The government has been working with the Ministry of Law in order to develop an effective system to deal with cases
of electricity theft and this was expected to be operational and implemented by the end of 2015.