Prime Minister Imran Khan has recently said that the issues pertaining to the power sector give him sleepless nights. The admission sums up the formidable nature of the challenges the power sector reforms hold for his government and the country.

Khan says it took his government more than a year to get the actual figures from various departments. He says that provision of affordable power without adding to the rising circular debt is so daunting a task that it “sometimes keeps me awake at night.”

Weeks later, a massive power failure plunged the entire country into darkness. The blackout spotlighted the shabby transmission and distribution system that inflicts losses to the tune of billions every year.

According to the Economic Survey for 2019-20, Pakistan has an installed capacity of 35,972 megawatts (MW). The share of hydroelectric power stands at 30.9 percent, whereas nuclear power plants and renewable energy contribute 8.2 percent and 2.4 percent, respectively. The transmission system, according to the energy minister, is capable of distributing only 26,000 MW.

Pakistan’s power sector faces many and multi-faceted challenges, but the elephant in the room is the circular debt. It is officially projected to be around Rs 2.8 trillion by June 30. In 2005, circular debt emerged as an issue for the first time following the then government’s decision to keep electricity tariffs far below the cost-recovery level. During the last 15 years, successive governments have been unable to turn around the power sector and plug the system losses of around 25 percent that roughly translate as Rs 450 billion a year.

The Pakistan Tehreek-i-Insaaf (PTI) had promised change and reforms before coming to power. The PTI manifesto promised to “solve the circular debt issue by reducing transmission and distribution losses, and implementing our plan to harness our natural resources towards a greener energy mix.”

But after coming to power and almost halfway through its term, the PTI government is no further than blaming its predecessors or the problem.

Energy Minister Omar Ayub holds the PML(N) government responsible for the countrywide blackout suffered recently. He says it had focused on increasing the generation capacity without simultaneously upgrading the transmission system. Past governments, he says, were also responsible for the circular debt and unfair agreements with independent power producers (IPPs) and other ills in the power sector.

On January 21, while announcing a Rs 1.95 per unit or 15 percent raise in electricity tariff for all consumers, Ayub said that the PML-N government had “laid landmines,” for its successor making some unpopular decisions necessary.

Pakistan’s power sector faces many andmulti-faceted challenges, but the elephant in the room is circular debt. It is officially projected to be around Rs 2.8 trillion by June 30.

For the first time in around two decades, base tariff for lifeline consumers - using 50 units a month or less – has been raised. Pakistan’s average power tariff is 25 percent higher than India and Bangladesh.

Ayub says the PTI had inherited an unsustainable level of capacity payments from the PML-N government. The power purchase agreements reached by the previous government, he says, were concluded with bad intentions. He also says the PML-N government did not pass on the previous years’ tariff adjustments worth Rs 227 billion that should have been recovered by 2019.

“This is not something new,” says former finance minister Miftah Ismail. “They blame us for everything under the sun,”.

He says the recent increase in tariff is due to the ever-increasing circular debt, which is at its highest in the country’s history because the government has failed to introduce reforms. The PML-N government, he says, had brought transmission and distribution losses from 21 percent down to 18 percent but these have once again risen to 19.5 percent. Recoveries, h points out, have come down to 88 percent compared to PML-N’s 93 percent.

Ismail says the government alone is responsible for the high production cost since it has been violating NEPRA’s merit order under which purchase preference is given to cheaper generation. The PTI government has wreaked havoc on the country’s economy, that had been growing at the rate of 5.5 percent leading to a 10 percent growth in electricity demand. The electricity demand has shrunk since the economy is in tatters, he adds.

Dr Khaqan Najeeb, who has served as an advisor in the Ministry of Finance, says the “tariff regime should have been reformed to incentives use of excess supply.” The lack of a functioning electricity market dominated by the state as a single buyer and the regulatory inability to tame a government-dominated system makes it hard to create efficiency, says Najeeb.

“The way forward is to utilise the excess supply to bring per unit price down. Use the most efficient plants by adhering to merit order to reduce fuel cost per unit,” he says.

Special Assistant to Prime Minister Tabish Gauhar says, “signing of MoUs with IPPs is an important step towards reducing end-consumer tariff.” He says that past governments had signed generous agreements, but the economy could not afford to pay 30 percent dollar-indexed annual return on equity.

The government has also approved a roadmap to set up a wholesale commodity exchange by next year, allowing multiple buyers and sellers to trade electricity under a take-and-pay regime to reduce consumer tariffs, improve service, and share the federal government’s financial burden.

He says that around Rs 450 billion subsidy goes to the sector every year and in a bid to provide a targeted subsidy to those who deserve the most. A pilot project mapping the Islamabad Electric Supply Company (IESCO) billing with the corresponding Ehsaas database is in progress.

“Remove people having a conflict of interest from the power sector, and it will work fine,” recommends Ismail.

The writer is a journalist and researcher based in Islamabad