The five years of the PPP-led coalition government are marked by severe criticism due to its failure to resolve the energy crisis during its tenure.
There is a general agreement that the crisis was inherited by the elected government with the Musharraf-appointed caretakers engaged in three disastrous policies: (i) extending crippling subsidies to ensure that the rise in the international oil price was not passed on to the consumers with its consequent negative impact on the budget deficit and the country's financial resources; (ii) supporting inefficiently-run distribution companies by paying hundreds of billions of rupees to eliminate the inter-tariff differential though analysts are agreed that a political government cannot afford to provide electricity at different rates at different locations; and (iii) not implementing identified reforms inclusive of eliminating the inter-circular debt, reducing transmission losses as well as bringing the tariff to the level of full cost recovery.
The five years of PPP rule indicate a focus on increasing tariffs as the main means to deal with the crisis while the other reforms remained unimplemented in spite of the government's commitment to the International Monetary Fund (IMF) to implement them within a two-year period. In effect, the Water and Power Ministry increased tariffs by 100 percent in five years and the duration of loadshedding doubled - from four hours in urban and 8 hours in rural in 2008 to 8 hours in urban areas and 16 hours in rural areas. Thus data suggests that the government efforts towards demand as well as supply management remained ineffective. In this context, it is also relevant to note that the federal government actively promoted a policy of expanding the energy network with a major energy shortfall resulting in compounding the demand-supply gap.
In addition, due to failure to implement tax reforms that would have rendered the tax structure equitable and less anomalous; the government also relied on taxing the fuel and energy sector to generate funding for its ever increasing expenditure given that this was a relatively easier way to collect revenue. Thus the fuel and power sector were not only inefficiently run with large-scale leakages from the system but also were a key source of revenue for the government that simply raised tariffs without any focus on increasing the performance of the sector. This disastrous policy led to the government's failure to meet the energy demand of the economy's largest export earner - the textile sector. In short, the government, by relying on the energy sector as a major source of revenue, was unable to generate revenue from higher economic activity which is the major revenue source in other countries.
President Asif Ali Zardari has stated that the onus for the electricity crisis rests with the provinces given that Article 157 (2) (c and d) of 18th Constitutional Amendment empowers a province to "construct power houses and grid stations and lay transmission lines for use within the provinces and determine the tariff for distribution of electricity within the province". The provincial response has been that it lacks resources to engage in constructing large dams but this explanation does not absolve them from their own failing to use indigenous resources like Thar coal to generate electricity. Punjab has consistently maintained that any attempt to establish power houses have been stonewalled by the federal law ministry and refers to Nandipur and Chichon ki Malian with a combined capacity of 900 MW as examples. The question, however, is if the provinces can determine their own distribution tariffs then why does the federal government feel the need to release over 400 billion rupees per annum for inter-disco tariff differential? In short, there are many issues that need to be worked out in terms of federal and provincial roles in the energy sector notwithstanding the 18th Amendment.
The power sector as it stands today is inefficiently run with no effort being made to ensure that the obsolete plants are being run at operational capacity. Rehabilitation projects are under way and the USAID has brought a few plants to their full operational capacity but a lot more needs to be done. A short-term policy focus therefore must be on eliminating inter-circular debt which would necessitate disconnection of electricity to all those who fail to clear their bills, and cutting the unpaid dues of government entities at source to ensure bill payment, and finally to repair transmission lines and obsolete plants to ensure that the system is at operational capacity.
However, there is also a need to begin implementing new energy projects. Pakistan today has a gas deficit of around 3 mmcf and neither the Iran-Pakistan gas pipeline which is expected to generate around 0.75 mmcf nor Turkmenistan-Afghanistan-Pakistan-India pipeline with 1.5 mmcf can hope to meet our energy requirements. Pakistan needs to develop Thar coal fields as well as explore for new gas fields and begin construction of run of the water dams and large dams. Finances to undertake these mega projects remain a challenge; however, we must reprioritise expenditure, implement reforms and last but not least, support inter-provincial as well as federal harmony to resolve the crisis once and for all.
Thursday, March 21, 2013
Pakistan:Energy crisis: solutions
The five years of the PPP-led coalition government are marked by severe criticism due to its failure to resolve the energy crisis during its tenure.
There is a general agreement that the crisis was inherited by the elected government with the Musharraf-appointed caretakers engaged in three disastrous policies: (i) extending crippling subsidies to ensure that the rise in the international oil price was not passed on to the consumers with its consequent negative impact on the budget deficit and the country's financial resources; (ii) supporting inefficiently-run distribution companies by paying hundreds of billions of rupees to eliminate the inter-tariff differential though analysts are agreed that a political government cannot afford to provide electricity at different rates at different locations; and (iii) not implementing identified reforms inclusive of eliminating the inter-circular debt, reducing transmission losses as well as bringing the tariff to the level of full cost recovery.
The five years of PPP rule indicate a focus on increasing tariffs as the main means to deal with the crisis while the other reforms remained unimplemented in spite of the government's commitment to the International Monetary Fund (IMF) to implement them within a two-year period. In effect, the Water and Power Ministry increased tariffs by 100 percent in five years and the duration of loadshedding doubled - from four hours in urban and 8 hours in rural in 2008 to 8 hours in urban areas and 16 hours in rural areas. Thus data suggests that the government efforts towards demand as well as supply management remained ineffective. In this context, it is also relevant to note that the federal government actively promoted a policy of expanding the energy network with a major energy shortfall resulting in compounding the demand-supply gap.
In addition, due to failure to implement tax reforms that would have rendered the tax structure equitable and less anomalous; the government also relied on taxing the fuel and energy sector to generate funding for its ever increasing expenditure given that this was a relatively easier way to collect revenue. Thus the fuel and power sector were not only inefficiently run with large-scale leakages from the system but also were a key source of revenue for the government that simply raised tariffs without any focus on increasing the performance of the sector. This disastrous policy led to the government's failure to meet the energy demand of the economy's largest export earner - the textile sector. In short, the government, by relying on the energy sector as a major source of revenue, was unable to generate revenue from higher economic activity which is the major revenue source in other countries.
President Asif Ali Zardari has stated that the onus for the electricity crisis rests with the provinces given that Article 157 (2) (c and d) of 18th Constitutional Amendment empowers a province to "construct power houses and grid stations and lay transmission lines for use within the provinces and determine the tariff for distribution of electricity within the province". The provincial response has been that it lacks resources to engage in constructing large dams but this explanation does not absolve them from their own failing to use indigenous resources like Thar coal to generate electricity. Punjab has consistently maintained that any attempt to establish power houses have been stonewalled by the federal law ministry and refers to Nandipur and Chichon ki Malian with a combined capacity of 900 MW as examples. The question, however, is if the provinces can determine their own distribution tariffs then why does the federal government feel the need to release over 400 billion rupees per annum for inter-disco tariff differential? In short, there are many issues that need to be worked out in terms of federal and provincial roles in the energy sector notwithstanding the 18th Amendment.
The power sector as it stands today is inefficiently run with no effort being made to ensure that the obsolete plants are being run at operational capacity. Rehabilitation projects are under way and the USAID has brought a few plants to their full operational capacity but a lot more needs to be done. A short-term policy focus therefore must be on eliminating inter-circular debt which would necessitate disconnection of electricity to all those who fail to clear their bills, and cutting the unpaid dues of government entities at source to ensure bill payment, and finally to repair transmission lines and obsolete plants to ensure that the system is at operational capacity.
However, there is also a need to begin implementing new energy projects. Pakistan today has a gas deficit of around 3 mmcf and neither the Iran-Pakistan gas pipeline which is expected to generate around 0.75 mmcf nor Turkmenistan-Afghanistan-Pakistan-India pipeline with 1.5 mmcf can hope to meet our energy requirements. Pakistan needs to develop Thar coal fields as well as explore for new gas fields and begin construction of run of the water dams and large dams. Finances to undertake these mega projects remain a challenge; however, we must reprioritise expenditure, implement reforms and last but not least, support inter-provincial as well as federal harmony to resolve the crisis once and for all.
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