ISLAMABAD - The Asian Development Bank of Pakistan (ADB) has noted that power generation in Pakistan may overload the transmission and distribution systems that would threaten the financial sustainability of the energy sector.

 “Power sector state-owned companies do not have sufficient incentives to improve their financial and operating performance, while IPP operations have been adversely affected by delayed payments from the off-taker,” the ADB noted in its report ‘ADB’s Support to Pakistan Energy Sector (2005–2017)’. It further said that inter-and intra-agency coordination is poor, while political economy factors that support the status quo and resist reforms and transparency have slowed down improvements in the power sector.

The report stated that upcoming 10GW of power generation projects to be added by 2021 are expected to reduce and eventually eliminate power generation shortages, but in the absence of required sector reforms to address cost recovery these projects may worsen the financial sustainability of the sector. “During the past decade, electricity consumers have experienced frequent loadshedding of about 5 hours a day in urban areas and 10 hours a day in rural areas. As a result, electricity consumption per capita was stagnant during most of the evaluation period, with only a 6% increase from 2005 to 2016, whereas the ratio of industrial electricity consumption decreased resulting in industries turning to captive generation or closing business. This situation started changing in 2017 due to a change in policy that discontinued loadshedding in high loss feeders”.

The ADB stated that according to official government estimates about one third of the population is not connected to the grid power supply. However, because of the large number of illegal connections across Pakistan, it is difficult to estimate the actual number of households supplied from the grid.

Pakistan has been one of Asian Development Bank’s (ADB’s) largest borrowers in the energy sector in terms of Board approvals, with $7.76 billion approved in 2005–2017. ADB has been the leading development partner in the Pakistan energy sector since 2005, employing a multipronged approach, including sovereign loans, non-sovereign investments, and technical assistance across all subsectors.

The sustainable development of Pakistan’s power system requires the sector’s circular debt (i.e., cash shortfalls across the power supply chain) to be addressed. The sector needs to become more efficient and financially sustainable, while the power supply needs to be more reliable and accessible to more people, while increasing the share of renewable energies.

The circular debt stock, including debt transferred to the state-owned company Power Holding Private Limited (PHPL), which is not recognized as circular debt by the government, is approximately 1 trillion Pakistan rupees (Rs), approximately $10 billion.

The delay between the determination of the tariff by NEPRA and the notification of the tariff by the government has increased the gap between the cost of supply and the billed amounts to consumers, which the government identified as the main contributor for circular debt growth.

The federal government continues to subsidize electricity sales to certain regions, collections are not recovered from federally administered tribal areas and tube-wells in Balochistan, and taxes are still raised on non-recovered amounts.

Working in a very challenging environment, ADB has successfully supported power transmission and conventional generation, and to a lesser extent power distribution, which has become the weakest link of the grid power supply network. Support for sector reform and clean energy fell short of achieving its intended outcomes. The overall performance of ADB’s assistance is less than successful. All subsectors are rated less likely sustainable in view of the circular debt situation and the high financial risks across all subsectors. Regarding results, the power system’s reliability and efficiency have increased, but only limited progress has been made in addressing the underlying causes of circular debt and in strengthening the financial sustainability of the power sector. However, without ADB support, the situation of the power sector in Pakistan would likely be more precarious.

The following recommendations are intended to improve ADB’s performance and its support to the power sector in Pakistan. Strategically, ADB should support: (i) improved governance in the power sector, through mechanisms that remain in effect through political changes; (ii) efforts in addressing the accumulation of circular debt by targeting its underlying causes; (iii) long-term planning and improved management systems in transmission and distribution; (iv) clean energy and conservation through investments and enhanced policies and regulations.

Operationally, ADB should (i) provide advisory services towards developing a competitive electricity market; (ii) promote sovereign investments for lowering the cost of base-load power generation and integrated energy planning; (iii) support implementation of an action plan for DISCO commercialization, including efficient infrastructures, energy accounting through advanced metering, theft reduction through aerial bundled conductors (ABC), and commercialization analysis; and (iv) strengthen ADB’s internal monitoring and reporting system.

A consultation mission in November 2018 with the government confirmed the findings, issues and recommendations offered by the report and key stakeholders have expressed their commitment to address the issues that affect the sustainability of the energy sector in Pakistan.