Energy crisis – is there light at the end of the tunnel?
Pakistan
Energy crisis – is there light at the end of the tunnel?
By Javed Iqbal
Pakistan is caught in the clutches of an energy crisis these days, drowning its citizens in a sea of soaring electricity bills.
Deplorable independent power producer (IPP) agreements, rampant electricity theft, circular debt saga and crippling IMF conditions all add to the woes.
Pakistan's power sector has long been plagued by controversial agreements with independent power producers (IPPs). The contracts signed in 1994, 2002 and 2014-15 never came under scrutiny.
No one gauged their unfair terms and detrimental effects on the state and its citizens. These agreements have not only loaded the country with exorbitant charges but have also raised serious questions about transparency, accountability, and the overall management of the energy sector.
One cannot turn a blind eye to the shameful agreements made between Pakistan and IPPs over the years. These agreements have created a system where charges are levied regardless of whether power plants are operational or not. It seems that the state of Pakistan has become a guarantor for the profits of IPPs, making it pay for a big amount of electricity - a disproportionate amount compared to the actual consumption. Such an arrangement seems anything but unfair.
To make matters worse, dozens of IPPs are operating in the country. Former federal minister for power and defence Khawaja Asif revealed that the annual electricity theft amounted to hundreds of billions of rupees.
This alarming amount not only highlights rampant corruption but also suggests that these agreements have become a breeding ground for illegal activities.
According to an economist, capacity charges constitute a whopping 70pc of the power purchase price, indicating an alarming imbalance in the electricity pricing structure. This disproportionate component is a cause for concern and raises questions about the efficiency and transparency of these agreements.
Even former prime minister Shehbaz Sharif had raised concerns about agreements, stating that Pakistan teetered on the brink of bankruptcy due to these IPP agreements.
A report published some years back shed light on the excessive profits earned by companies, amounting to a staggering Rs200 to 300 billion against a meagre investment of Rs57 billion.
Read more: Govt makes inquiry report on IPPs public
This inequality in profit margins, with companies making around 62-80pc profit, raises serious concerns about the integrity and fairness of these deals.
The report further exposed that these companies received billions of rupees in terms of fuel, highlighting a lack of oversight and responsibility.
Shockingly, it was revealed that by showing less efficiency in their operations, these companies were able to acquire more fuel, which they then sold in the open market for billions of rupees.
It is disheartening to note that despite the government providing a subsidy of Rs900 billion, there has been a constant rise in electricity tariffs, causing unrest among the masses.
This unsustainable situation has burdened the common man, with a significant portion of the circular debt being transferred to the consumers.
Additionally, 17 Chinese projects worth 15 billion dollars have been initiated, leaving one wondering how the government plans to reduce the electric bills of ordinary citizens.
Circular debt
Pakistan's energy sector is caught in a fierce battle with an ever-expanding circular debt crisis. With total payables reaching a staggering Rs2.63 trillion by April this year, beating the projected amount for the fiscal year 2022-23. The situation has become a ticking time bomb for Pakistan's financial stability.
As the circular debt continues to mount, it casts a dark shadow over the energy industry, impeding its seamless operation.
Free Units Saga
The Power Division on Tuesday furnished a briefing to caretaker PM Anwaarul Haq Kakar, revealing that employees in grades 17 to 21 currently enjoy 7 million units of free electricity per month.
Similarly, employees from grades 1 to 16 are using 330 million units of free electricity per month, and a total of 173,200 government employees utilise free energy worth Rs10 billion annually.
The Power Division further informed that by discontinuing the provision of free electricity to employees in grades 17 to 21, savings of Rs190 million per month can be achieved.
The division, however, proposed to pay the employees instead of providing free units. This move may be welcomed. However, there are doubts that a good number of Discos' officials would surely continue availing free units undercover as well as cash payments as happened in some cases in vehicle monetisation policy executed by the federal government.
What Miftah Ismail says on relief from IMF on electricity bills?
Former finance minister Miftah Ismail has claimed that without seeking permission from the International Monetary Fund (IMF), the incumbent government could not extend relief to masses who are feeling the heat of the inflated electricity bills.
Who is responsible for the power crisis?
Is it the fault of the political elite, the bureaucracy, or any other institution? The responsibility lies collectively on all fronts. The political elite, with their short-sighted policies and a lack of long-term planning, has failed to prioritise the building of dams and the promotion of cheaper electricity.
A vivid campaign against Kalabagh Dam is just one example. The politicians extended favours in terms of power supply to voters to remote areas consuming state resources that also paved the way for electricity theft.
Former power division secretary Irfan Ali, who also wrote to former PM Shehbaz, "How We Revved Up Pakistan's Electricity Sector" says: “During my tenure as secretary of the power division, my incredible team and I managed to tackle these issues head-on. The results were mind-blowing!
“We slashed the monthly increase of circular debt from a whopping Rs45 billion to just Rs12 billion in a mere two years. And we weren't stopping there. Our audacious goal was to bring it down to single digits by December 2020. Talk about a game-changer!
“It was an all-out nationwide crusade against corruption and power theft, fueled by the principles of law and merit. All the transfers and postings in the power sector were on merit as there was no political interference. We snuffed out those vices while tirelessly supporting and monitoring every power feeder in the country. The result? A dramatic reduction in pesky power outages.
“In just a year, we managed to recover a staggering additional Rs300 billion compared to the previous year. Even the IMF was blown away by our efforts and acknowledged the logic that cutting subsidies for the poor and agriculture would do more harm than good. We had a plan, a vision!
Yet, he said, we faced fierce opposition and the result was an unceremonious ouster.
Solution
Banning free units is just an eyewash. Paying heavy amounts against free units would serve no purpose. The highly paid officers deserve no free utility.
Cap the tariff with IPPs first so the negative impact of the flying dollar could be minimised. Fine those companies who milked millions fraudulently.
Solar energy, a potential solution to Pakistan's energy crisis, remains largely untapped. Despite being blessed with abundant sunlight, the country has failed to capitalise on this natural resource.
Read more: PM Shehbaz reviews policy on alternative sources of energy
The government should encourage the installation of solar panel factories and allow duty-free solar imports for cheaper use.
More hydropower projects may produce cheap electricity.
Turning lifestyle to daylight instead of night shopping, and late night eateries should be discouraged.
The trend of billing those who pay, for power thieves who don't pay, should be discouraged. What’s the logic in excessive taxation when consumers pay for electricity consumed?
Instead of privatisation like K-Electric or constituting politicised Boards of Directors of Discos as happened in the PDM regime, they may be run on a PPP basis for better recovery and control of electricity theft.
Last but not least, the self-accountability of institutions and those who penned shameful IPP agreements for kickbacks must be brought to justice.
