Institute for Policy Reforms (IPR) on Tuesday noted that government does not have a concerted plan to address the power crisis , as the loss to the country’s economy from electricity outages ranges from two to five percent annually.
“Power shortage comes at high economic cost. Lack of energy supply has limited the industry’s ability to operate to capacity, has inconvenienced citizens, and stymied growth altogether”, stated the latest report of IPR ‘Putting Power Back on Track: A Sustainable Resolution to the Energy Crisis’.
Citing various sources, the report noted that economy is facing loss of around two to five percent of the GDP annually. A major constraint to a sustainable power sector is the circular debt, which is around Rs 300 billion. Circular debt is caused by a combination of factors and has kept rising for several years. It has become one of the causes for the power sector’s diminished performance. Circular debt grew rapidly during the years that oil prices increased. Its growth would likely slow with declining prices in world oil prices.
Chairman IPR and former Commerce Minister Hamayun Akhtar Khan, former Finance Minister Hafeez Pasha and Ashraf M Hayat, author of the report, were key speakers of the event.
Speakers stated that government does not have a concerted plan to address the power crisis . They noted that government seems to have reduced the response to one of increasing installed capacity. They expressed the hope that government would keep in mind past mistakes, which have brought the sector to this stage.
Gaps existed in policy and governance. Decision makers knew most factors that lie behind the power crisis , but have been unable to address them. Even in their priority area of increasing generation, it is not clear where the government stands. It has moved between coal-powered plants and LNG. In between there was talk also of solar farms. Without addressing issues endemic to the sector, increase in capacity will face the same difficulties as at present. Foremost among the many issues that affect the power sector, is its inability to recover cost of delivery of power.
Discos lose about 30pc gross revenue. This means a shortfall in liquidity, which leaves no space for capital formation. The buildup of receivables limits power generation. It is not possible to improve the sector with such high losses. State run generation and distribution companies have under performed. It is important to improve their management structure.
Though government states that power sector is a priority, its public investment programme suggests otherwise. Overall, budget for the power sector is low with a major portion to be met by PEPCO itself. Rather than prioritize projects for early completion, many projects receive small sums of money and remain under implementation for years.
IPR recommends that in addition to new generation projects, government can increase power supply by taking immediate action as follows: pay the outstanding tariff differential subsidy and continue to timely liquidate this obligation, to settle the issue of circular debt, take administrative measures to reduce line losses and under recovery of bills. It should also reduce tariff slabs and have criteria for disconnection of supply. Government must increase gas allocation to the power sector; it must reform the tariff and subsidy policy. It should divert public funds from roads for early completion of on-going hydro and thermal power projects to increase generation.
In the medium term, for sustainable development of the power sector, it must plan base load generation based on cost per unit (prioritize hydro and coal) and solar/wind for off grid. Adopt a least cost approach to sequence projects, focus on indigenization, despite present decline in energy prices and expand hydropower, develop a plan for Thar resources, explore shale potential, and increase solar and wind generation.