Pakistan: Why has loadshedding increased?

Legitimate questions are being asked as to why the duration of loadshedding has risen in spite of the 29th June 2013 clearance of 326 billion rupee Independent Power Producers' (IPPs) debt (on account of inter-circular debt) while the remaining 177 billion rupees is to be cleared by August 10 as per the Economic Co-ordination Committee's (ECC) decision. The pervasive contribution of the inter-circular debt as a critical factor in the energy sector's ability to produce at capacity is well established as well as recognised by all including energy sector experts, economists as well as political parties. Severe liquidity problems due to failure of one energy sub-sector to clear the dues of another has culminated in the inability of Pakistan State Oil (PSO) to pay for fuel imports which, in turn, accounts for a massive rise in loadshedding leading to violent street protests. During the past five years, the government felt compelled to release unbudgeted funds to PSO to enable it to open letters of credit for the import of fuel and once funds were released loadshedding eased albeit for a limited period because the root cause of the circular debt was not tackled and the debt simply resurfaced. There are a myriad number of reasons for the circular debt that include: (i) poor recovery of dues (an estimated gap of 12 billion dollars between the cost of generation and payments received during the past four years that has been filled through massive subsidies), (ii) theft, (iii) transmission losses more than a percentage point above the stipulated level, (iv) heavy reliance on expensive imported fuel, (v) inefficiently-run sector inclusive of the regulator and ministries, and (vi) lack of co-ordination between related ministries. Thus the PPP-led coalition government as well as the caretaker government led by Mir Hazar Khan Khoso periodically injected cash into the liquidity-strapped PSO to enable fuel imports for the generation companies to operate at higher capacity than was otherwise possible. The usual fund injection varied from 10 to 12 billion rupees and its beneficial impact in terms of reduced loadshedding lasted between 10 to 20 days depending on demand during that time period. So why is it, query members of the Opposition including Naveed Qamar, former Federal Minister for Water and Power and the general public, that this time around with clearance of a whopping 326 billion rupees, loadshedding has risen? This question is particularly relevant given that senior ministers of the newly-elected government including Khawaja Asif, the incumbent Minister for Water and Power and Pervez Rasheed the Minister for Information, are on record as having stated that even though the scale and extent of the energy sector problems would require years to fully resolve yet people will start seeing tangible results soon. That the tangible results are showing a worsening trend has angered the general public and left the PML (N) government wrong footed. So what factors are at play? The PML (N) would have the public believe that the demand-supply gap has decreased to 3500 MW (data that few regard as credible like in the past) due to a rise in generation to 13500 MW; and maintain that the rise in loadshedding can be attributed to high demand of 17000 MW. During the past five years the shortfall figures have on average varied between 3500 MW to 6000 MW and hence the current shortfall figures, even if accurate, do not reflect any major gains for the PML (N) government. But the question remains: why has loadshedding increased? One reason could well be that while the PPP-led government and the caretakers tackled the problem by injecting money to enable imports of fuel supply by PSO the PML (N) government has tackled the problem by retiring the IPPs' circular debt with a commitment that they produce at optimum capacity. In other words, the rationale is that if the IPPs have the ability to pay for fuel imports then a visible difference would be evident in electricity supply. But given that at the same time the newly-elected government has withheld release of subsidies to distribution companies, including KESC, on account of inter-disco tariff differential subject to audit by the Auditor General of Pakistan, a rise in loadshedding could well be curtailment of supply by discos at a lower tariff than their purchase price without the subsidy. Another reason could be Supreme Court's directive for equitable loadshedding which accounts for a rise in loadshedding in cities/towns, where violent street protests have been held, whereas prior to the directive rural areas suffered considerably more than urban centres.