Pakistan’s decade-old energy crisis has finally reached a critical juncture, where decisive action is needed with proper implementation of solutions that address the concern while saving the country from going into a current account deficit.
Pakistan’s decade-old energy crisis has finally reached a critical juncture, where decisive action is needed with proper implementation of solutions that address the concern while saving the country from going into a current account deficit.
As a developing country, there’s a constant battle between demand and supply challenges. Economic growth, industrial productivity and foreign investments constantly demand more energy. Without investments in renewable energy sources and investments in solar, winds and natural gas plants, coping with demand seems impossible. However, the real question is: are our policymakers capable enough to strategize a plan that aligns future economic growth with the present cascade of problems the country and its citizens are facing?
Since 1994, being caught in a tug-of-war between multiple short-term governments has resulted in economic mismanagement of the energy crisis, leading to 'capacity debt', which has now risen to Rs2.6 trillion. Outdated policies no longer align with current economic conditions, necessitating significant restructuring of tariffs to reflect the actual supply from Independent Power Producers (IPPs).
In normal circumstances, we pay for things we use. In Pakistan’s case, we pay for what we may or may not need in the future. Pakistan has installed a capacity of 45,000MW, while peak demand lies at around 30,000MW in the summer and only 17,000MW in the winter.
High forecast demand and minimally utilized capacity stem from a poorly managed policy framework lacking innovative seasonal tariffs to balance the demand all year round.
The ramifications of the inefficiently designed power infrastructure burden local consumers. The constant change in the climate and the increasing population demand more electricity, but purchasing power issues have made it impossible for people to cope with these increases in tariffs. The extreme devaluation of the rupee and skyrocketing inflation feeds further into the problem.
This leads to power theft and illegal meter tampering commercially and in households, which only adds to the loss of revenue. Not only consumers, but utility companies have also notched up their internal corruption becoming unreliable and extremely unaffordable. The FIA recently found the Lahore Electrical Supply Company guilty of overbilling of up to 830 million units. This exacerbates the sector's reputation for corruption. Decision-makers should prioritize addressing these challenges and rigorously scrutinize such illegal practices that impose an additional 20-25 per cent cost on consumer bills. Addressing these issues could significantly alleviate consumer burdens and potentially reduce power theft.
The current fall in industrial activity due to heavy tariffs on imports, lack of flexibility on trade and most importantly, the stagnation in technology and inadequate use of R&D has led to disappointing numbers. Pakistan’s prized and protected possession, the textile industry, has threatened to shut down over the soaring energy costs. While bigger groups might survive the storm, smaller market players are on the brink of shutting down. This significantly harms the country’s exports and increases import reliance, worsening devaluation and trade deficits. The slow development has led to energy demand predictions falling short of reality. Rising power tariffs and sluggish technological advancements are major contributors to reduced industrial activity.
Questions are raised over the Ministry of Energy (Power) and the National Electric Power Regulatory Authority’s (Nepra) responsibility in this emergency. Are they capable enough to find solutions to the crisis without bleeding the consumers out? An expedited decision-making process with reliable accountability mechanisms is crucial at this hour. Properly defined roles of these stakeholders with a centralized regulatory framework seems to be necessary at this point. Steps need to be taken on making the process more efficient by giving DISCOs more independence and more involvement in the decision-making processes. These redundant systems require a comprehensive overhaul without delay.
It all comes down to the sheer lack of political will of governments that has led to this complex conundrum. Unstable policies and irrational economic goals have made affordability for the common population an unachievable goal. Now that the government has tightened its belt in the recent budget courtesy the IMF anvil, it is imperative that long-term solutions to these challenges are brought on the table by IMF as well to get the government to think of out of the box solutions.
This constant blame game and dereliction of duty has historically affected the people of Pakistan. Over the years, governments have failed to find solutions to the said problem, not trying to renegotiate terms and conditions in accordance with the economic conditions at that point. Be it democratic governments or military rule, the incompetence of policymakers is inexcusable and paints the perfect picture of how the ruling elite are motivated by self-interest rather than the duty of serving their nation and its people.
The writer is a student of economics and political science at the Institute of Business Administration, karachi. She can be reached at: emaanjam1@gmail.com
