Pakistan’s Energy Crisis – A Holistic Picture [1 of 2]

These days Pakistanis are facing acute electricity shortage  and it is continuously soaring, crossing the 6000 MW level. Resultantly, the people are forced to stay without electricity for more than 12-14 hours in cities and around 16 hours in rural areas. The country suffered from worst power crisis last year which then provoked violent protests all over Pakistan. But the situation has not been improved and the protests continue at the same scale as witnessed last year. The deepening power crisis has forced many businesses to close down. Consequently tens of thousand people have been rendered jobless and the number is feared to increase following this worsening crisis. 
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ENERGY SCENARIO: A MANIFEST OF LACK OF VISION, POOR PLANNING AND POOR GOVERNANCE

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by Ashraf Malik, Uzbekistan

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It is hard to believe that only seven years back, in 2004, Pakistan had 30% surplus in generating capacity compared with demand. There were discussions at that time of exporting even the surplus to India. And now in August 2011, power shortage has reached 7,000 Megawatt (MW), about 40% of the demand, which has resulted in 10 hours of load shedding in urban areas and much more in rural areas. According to the prevailing circumstances, the situation is going to worsen in future.

The current situation is a combined result of lack of vision and poor planning, inaction, lack of institutional capacity, poor governance, and mismanagement.

Up till 2003-04 the countrywide power demand growth was only 3%-4% per year, but rose to 10% in 2007-08 following a high economic growth. The 2005 Medium-Term Development Plan targeted an installed capacity of 27,420 MW by June 2010. However the actual capacity in June 2010 was only 20,651 MW, with a shortfall of 6,769 MW (25%).

About 4,670 MW of capacity was added to the system between 2000 and 2010 of which only 1,619 MW was from hydro, including Ghazi Barotha which with installed capacity of 1,450 MW was commissioned in 2004.

The prolonged load shedding has severely affected all sectors of the economy; be it the industrial production, agricultural activities, offices, educational institutions, or homes.

Ironically, there seems to be no respite in the foreseeable future. Different reasons are given by different people and institutions such as the installed capacity less than the demand, expensive contracts with independent power producers, high system losses, power thefts, and nonpayment by some major private and public sector consumers. But public is confused about the true reason for this nuisance and questions if there are more than one reasons, what are those and what is the relative importance of each. The most important being: what is the way out?

In this article am going to review the holistic picture of the issue of energy shortage in Pakistan, starting with an overall picture, followed by discussion on key factors responsible for power shortage, and closing with options to overcome.

The first thing that comes to mind when faced with energy shortage is the installed capacity of the generating facilities being less than the demand. True, but in addition, we must keep in mind that all capacity may not be available at all times because some units may be out of service due to scheduled maintenance, breakdown, or in case of hydroelectric power,  the water level in reservoir may be less and/or the water to be released through the power units is less.

Total Installed capacity in 2009 was about 19,786 MW, net available varies from 14,500 MW in winter to 17,500 MW in summer. Hydropower units lose about 40% of their generating capacity in winter due to lower water levels in the reservoirs and lower availability of water for release through turbines. In 2008-09, total energy generation was 91,616 gigawatt-hours (GWh). The current capacity mix is: hydel 31.7%, thermal 66.3%, and alternate energy and nuclear 2.0%. Actual generation during 2008-09 from different sources was: Oil 34.9%, Gas 32.7%, hydel 30.6%, coal 0.1%, and nuclear 1.7%.

It is hard to believe that only seven years back, in 2004, Pakistan had 30% surplus in generating capacity compared with demand. There were discussions at that time of exporting even the surplus to India. And now in August 2011, power shortage has reached 7,000 Megawatt (MW), about 40% of the demand, which has resulted in 10 hours of load shedding in urban areas and much more in rural areas. According to the prevailing circumstances, the situation is going to worsen in future. 

The next important aspect is transmission and distribution. According to the World Bank, transmission and distribution losses in Pakistan were 22% in 2008 which is among the highest in the world compared with 6% losses in China and USA, and 11% in the Philippines.

Higher losses are due to old and inefficient facilities, and pilferage. Distribution losses reflect the difference between the energy a local power distribution company receives from transmission and the energy it bills to the customers. Hence, it includes both distribution system losses as well as pilferage. Distribution losses in Hyderabad, Peshawar, and Karachi are more than 30% compared to 7% to 15% in other distribution companies.

According to the 2008-09 data, the distribution losses in various companies are:

Hyderabad 31.5%,

Peshawar   31.2%,

Karachi       38.5% (includes transmission losses),

Faisalabad   9.1%,

Gujranwala  9.4%,

Islamabad   7.7%,

Lahore       12.8%,

Multan       15.1%,

and Quetta 14.3%.

 This clearly indicates high power pilferage in three distribution companies, which is in line with the general information we get from the media. This also indicates the potential of an increase in revenue with improved governance.

And don’t consider that you get all what you bill. Generally, the poor and middle class consumers and small commercial and industrial units pay their full bills in time. However, many influential consumers including the government offices don’t pay their bills in full and in time. Many government offices consume energy much more than what their funds allocated for energy allow, and, hence, they cannot pay and use their influence to avoid disconnection with the result that the receivables keep on mounting.

Commoners also misuse the poor-friendly tariff structure — lowest tariff for first 50 units and then gradual increase for each slab. Consumers in this category frequently misuse the provision by getting many meters installed to get a lower overall bill.

Let’s see what energy mix has to do with load shedding. Each source of electricity has different cost of production, hydel being the cheapest and the rented power plants using imported oil being the most expensive. All these sources ultimately feed to the grid from where the energy is transmitted and then distributed. In 2009-10, the average consumer-end tariff was Rs 6.20 per KWh compared to the consumer-end average cost of Rs 8.75 per KWh, which clearly indicates that the current power tariffs are below the cost-recovery level. The difference is shouldered by the Government as a subsidy which rose to Rs. 226.6 billion in 2009-10, despite the fact that tariff were raised by 34% in 2009-10. The Government has its own financial problems and thus does not pay the subsidy in full and in time. Thus, PEPCO, which has the overall responsibility of managing the power system, cannot pay in full to the power producers which in turn cannot pay to companies supplying the fuel. Thus the fuel companies cannot supply fuel which results in shutting down the power units. This circular debt is a major factor responsible for power shortage at magnitude much higher than what could be anticipated because of other factors like lack of capacity.

THE CIRCULAR DEBT WHICH STARTED IN 2006, CURRENTLY STANDS AT MORE THAN RS. 250 BILLION.

It is important to note that the Government has to shoulder in the subsidy from the budget, the difference between the average cost of energy (Rs. 8.75 per unit) and the average consumer-end tariff (Rs. 6.20 per unit), which currently stands at Rs 2.55 per unit. The current annual subsidy of more than Rs. 200 billion is a heavy burden and is unsustainable. Question that arises is: how can we reduce this? It will be hard to raise the tariff to the point that it can recover the full cost of production, transmission, and distribution considering the affordability of the consumers. The current load shedding whether voluntary or involuntary is helping the Government reduce its subsidy by supplying less energy through implementation of longer hours of load shedding. This, however, is counterproductive for the economy and unpopular with the people.

Continued.

Next: Is there any other positive way?

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10 CommentsLeave a comment

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  3. Nice article.
    Wish u best.

  4. I appreciate ur visit and comment. Thank you.

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  9. As a whole, this article is very informative.

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