Energy is critical to growth. However, its access is a problem in many remote regions around the world. In Pakistan, its affordability and quality are also an issue.

In order to understand the complicated nature of energy sector’s operations, one has to first study the mechanisms through which energy is produced and distributed in the country.

Pakistan has a very fragile and inefficient energy distribution system. Barring Karachi where electricity is supplied by a private sector company, the power generation and distribution system in the country is managed entirely by the public sector. The state buys electricity from private sector producers and transmits it to the public sector distribution companies for supply to domestic, commercial, and industrial consumers. The power is purchased from the private sector under a sovereign guarantee by the government that ensures at least a 17 percent rate of return on investment to the producer. In case the government fails to purchase power from private suppliers it has to pay capacity charges (60 percent) to the producer). The state has also established its own power generation companies. Many of these companies are highly inefficient so that the cost of production is frequently higher than the average power tariff.

The energy situation was satisfactory till the ’80s but as the country industrialized and more and more cities and villages were electrified there were power shortages in mid ’90s. Until then power generation had been entirely in the public sector. Most of the electricity came from Mangla and Tarbela dams and was very cheap. Accordingly, the power tariff was very low. However, by the time power shortages emerged in the country there was no hydro-electric project in the pipeline. Commissioning a hydroelectric project required at least a decade. To overcome the shortage the PPP government in 1993 signed agreements with several private sector companies called independent power producers - mostly international investors. The projects had the blessing of the World Bank and its arm International Finance Corporation financed those projects. The upfront price of power agreed with these IPPs was very high. The upfront high price covered the return of bank loans and the tariff that tapered off after seven years. The government was bound to buy electricity from these plants for 30 years or pay the capacity charges. Payments for electricity supplied had to be cleared in 45 days. Any default in payment could be challenged before foreign arbitrators whose decision was to be final.

The high cost of power came as a rude shock to most consumers. Many resorted to stealing power. The power distribution staff willingly collaborated in this theft at a regular rent on a monthly basis. The theft was covered in the name of transmission and distribution losses. The theft continued increasing and did not allow the state to recover the cost of electricity. The government thus started defaulting on payments to IPPs. When the IPPs threatened to seek international arbitration, the state ordered Pakistan State Oil to supply the fuel to the IPPs on deferred payments. The gas distribution companies, also under government control, were asked to supply gas to power producers on similar terms. This created a circular debt. The government owed money to IPPs and IPPs to the fuel suppliers. The state settled some bills of the IPPs to manage their salaries and maintenance, but fuel was the major component of the cost.

The entire power sector was thus corrupted. First it was power theft, passed off as distribution losses, that enriched the distribution staff; then the officials started going soft on bill collection as well. The private sector default in the power sector ultimately exceeded what the government owed. Together, the default is currently over a trillion rupees and the circular debt over two trillion rupees. In the past 30 months the power tariff has almost doubled, meanwhile the percentage of distribution losses (a euphemism mostly for theft) has increased. The entire power sector is now crippled.

The present regime blames the high capacity charges allowed to the recently installed power plants. The government says demand in the energy market has not matched the increase in the power production capacity. In fact, the power demand is less currently than what it was 30 months ago. This is quite unusual as power demand had continued to increase by 10 percent annually even during the slow-growth PPP tenure (2008-13). During the PML-N tenure (2013-2018) it had grown by 15-29 percent. Had the economy kept to the growth trajectory, there would have been no need for capacity payments without production of electricity. In fact, according to earlier NEPRA projections, the power demand would have exceeded supply in 2020.

The consumers are suffering thus because of the failure of the governments (past and present) to control corruption in the power sector. The corruption is widespread and takes many forms. One has to pay a bribe to get a power connection. In case of faulty service the repair crew have to be bribed. An international audit showed that furnace oil was being mixed with water resulting in damage to generators reduction in output.

Subscribers not paying their mobile phone bills can have their connections severed remotely; electricity is harder to disconnect and easier to steal. This leads to a vicious circle in which utilities lose money, reducing the funds available for improving and expanding supply, and further sapping consumers’ willingness to pay. The real threat to energy access is that energy is treated by many not as a private good, but as a right, irrespective of the ability or willingness to pay.

Natural gas was discovered in Sui, Balochistan, but consumed mostly in major cities. Exploration more gas fields in Balochistan could not continue because of political disturbances. Subsequently gas was also discovered in Sindh and KP. The Musharraf regime allowed industries to use gas to generate power. It also allowed the establishment of CNG stations for vehicular traffic as gas was surplus. Soon the gas demand exceeded supply. After the 18^th Amendment, the first right to use of gas was given to the provinces where it was produced. This resulted in disruption of gas supplies to industries in the Punjab which not produce gas.

In the meantime, the gas reserves in the country started depleting. Pakistan started importing liquified natural gas (that is later regasified) to overcome the shortages. This gas comes at 2.5 times the cost of domestic gas. There is an acute shortage of gas this winter, but the consumers are reluctant to pay higher tariffs. Moreover, the distribution infrastructure does not have the capacity to handle the amount of imported gas that is needed. The LNG terminals in the pipeline may provide some relief to consumers next year (in terms of supplies, not tariff). For the time being the federal government is subsidizing imported gas for exporting industries.

Life without electricity is unimaginable to most Pakistanis; still nearly 20 percent of the population (45 million people) lack access to electricity. This means that they can enjoy no electric lights, mobile phones, radios or televisions. For them, life comes to a standstill at sunset.

The writer is a senior economic   reporter at The News